The following account balances were found for Rio Corp. at the beginning of its fiscal year, January 1, 2020:

Accounts Receivable....................................................................... $1,240,200

Allowance for Doubtful Accounts................................................... 29,220

Sales for the year were $8,100,000, of which 70% was on credit, and sales returns were $140,000. Cash collections, excluding recoveries, were $6,420,000. Rio had also written off $52,500. The companys credit and collection manager has estimated that 5% of outstanding accounts receivable are uncollectible.

Instructions

1. Calculate the balance in accounts receivable at December 31. Show calculations (3 marks).

2. Provide the appropriate journal entry to record the bad debt expense for the year. (3 marks)

	Debit	Credit

Part B. (6 marks)

On April 1, Algiers Ltd. factored $500,000 of accounts receivable with Delhi Finance Corp. on a without recourse basis. Under the arrangement, Algiers was to handle disputes concerning service, and Delhi Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Delhi Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 3% of the total receivables to cover sales discounts.

Required

1. Prepare the journal entry required on Algiers' books on April 1. (3 marks)

Entry on Algiers books	Debit	Credit

Question 2 Part B.(continued)

b) Prepare the journal entry required on Delhi Finances books on April 1. (3 marks)

Entry on Delhi Finances books	Debit	Credit