Accounting Problem


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The Question asked is as follows:
Assume the following events for the year 2008.

1. Credit sales $900,000
2. Cash sales 300,000
3. Accounts receivable balance 1/1/08 56,000
4. Accounts written off during the year were 8,000
5. Allowance for Uncollectibles balance 1/1/08 6,300
6. Seventy percent (70%) of this year's credit sales are collected during the year.


Scenario One
Use the above data set. Assume that the company estimates its annual bad debt expense at 3% of credit sales.


1. The adjusting entry to recognize the bad debt expense would be

a) Bad debt ex 8,000
Allow for bad debts 8,000
b) Allow for bad debts 17,000
A/R 17,000
c) Bad debt ex 36,000
Allow for bad debts 36,000
d) Bad debt ex 27,000
Allow for bad debts 27,000

I choose d because 900,000 * .03 = 27,000. And we know that Bad Deb Expense is journalized debit to Bad debt ex and credit to Allowance for bad debts.

2. The write-off of delinquent accounts would be

a) A/R 8,000
Allow for bad debts 8,000
b) Allow for bad debts 8,000
A/R 8,000
c) Bad debt ex 8,000
Allow for bad debts 8,000
d) Allow for bad debts 8,000
Bad debt ex 8,000

The write off would be Allowance for bad debts 8,000 making my answer B
A/R 8,000


3. The net accounts receivable figure at the end of the year would be

a) 292,700 b) 318,000 c) 300,700 d) 283,700

This one was tricky for me.
A/R began with 56,000 + 270,000 from the 30% of sales giving me 326,000
allowance for for uncollectibles were 6300 + 27,000 giving me 33,300
326,000-33,300 is 292,700 which makes my answer A. But this was confusing for me. Somehow I think I got it wrong.



Scenario Two
Use the above data set. Ignore Scenario One. Assume that
the company estimates its annual bad debt expense at 5% of
accounts receivable.

4. The adjusting entry to recognize the bad debt expense would be

a) Bad debt ex 15,900
Allow for bad debts 15,900
b) Allow for bad debts 17,600
A/R 17,600
c) Bad debt ex 17,600
Allow for bad debts 17,600
d) Bad debt ex 8,000
Allow for bad debts 8,000
I couldn't figure this out for the life of me. I know its a Debit to Bad deb exp and a credit to allowance for bad debts but beyond that I have no clue.

5. The write-off of delinquent accounts would be

a) A/R 8,000
Allow for bad debts 8,000
b) Allow for bad debts 8,000
A/R 8,000
c) Bad debt ex 8,000
Allow for bad debts 8,000
d) Allow for bad debts 8,000
Bad debt ex 8,000

I know write offs mean Allowance for Bad Debts 8,000
A/R 8,000 so this one wasnt too bad

6. The net accounts receivable figure ate the end of the year would be

a) 302,100 b) 301,400 c) 310,000 d) 283,700

This one kept giving me heartache since there was no way to figure it out for me. I really hate the notion of net accounts receivable. I know its A/R - Allowance for Uncollectibles but still....
 
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Joined
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Hi hqdari,

I know this is a bit late but I hope this still helps you.

3) You're right. The answer here is 292,700. But the coputation is as follows:

A/R = 56,000 + 270,000 - 8,000 = 318,000
Allowance = 6,300 + 27,000 - 8,000 = 25,300
Net A/R = 318,000 - 25,300 = 292,700

You forgot to deduct 8,000 (written off accounts) from both A/R and Allowance that's why you still get the correct answer

If you need further help, just e-mail me at ooyesoui_0014 @ yahoo.com
-helpwithias
 

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