Use the following to answer questions 7-11:

At the beginning of Year 3, SanMat Inc.'s executive team decided to relax the company's credit policies in an effort to increase its market share. While the sales department was unanimously in favor of the change, the accounting team was more cautious. They are concerned that the new policy will lead to excessive defaults by their new customers. To offset this risk, the executive team also decided that SanMat will now use 10% of A/R for calculating Bad Debt Expense each period instead of 3% of credit sales the company has used for years.

At the beginning of Year 3, SanMat reported A/R of $250,000 and an Allowance for Bad Debt of $3,500. In Year 2, the company had credit sales of $600,000. During Year 3, SanMat's credit sales increased to $2,200,000. While the sales department is thrilled with the increase, the accounting team pointed out that A/R has increased to an ending balance of $600,000 on December 31, Year 3. In an effort to speed up collections, the company has also implemented a cash discount policy of 2/10; n/30. SanMat used the GROSS METHOD for recording credit sales.

7. (6 points) Make the necessary journal entries on September 15th to record the sale of 4,000 units of SI-2 to FRM Co. on account for $125 per unit. Assume that SanMat uses a perpetual inventory system and that the cost of each unit of SI-2 is $112. Ignore tax effects for this problem. (A 5)

8. (5 points) On September 20th, FRM Co. paid 45% of its bill from the September 15th purchase. In order to keep the client happy, SanMat's sales department has insisted that they be given the cash discount for this portion of their bill. (A 5)

9. (4 points) On December 30th, SanMat received notice from FRM's attorney that the customer has entered bankruptcy protection and will not be able to repay the balance of the loan owed. Make the necessary journal entry to write off FRM's account. (AC 9 and A 5)

10. (9 points) Assuming the FRM's account is the only one that SanMat had to write off in Year 3, make the necessary journal entry to record the company's Bad Debt Expense for the year. (A 7)

11. (7 points) On February 12th, Year 4, FRM Co. emerged from bankruptcy protection. They have asked SanMat to reopen their account so that they can strengthen their business. SanMat's sales and executive teams have agreed to extend a limited amount of credit to the company on condition that FRM Co. repay 35% of the amount of its default in Year 3. Make the journal entry(ies) necessary to record the receipt of the required cash from FRM Co. on February 15th. (AC 9 and A 5)