Bad debts -Direct Write-off and Allowance Methods -
EchoGnomics is a wholesaler of garden figurines, selling mainly to independent gardening shops in Australia. All sales are conducted on a 30-day credit basis and no early payment or cash discounts are given. The following information has been extracted from the accounting records as at 30 June 2020.
Sales $874 000 , Sales Returns & Allowances 45 600 , Cash Collected ($549 600 + GST 10%) 604 560 , Bad Debts to be written off 6 952 , Accounts Receivable written off ($6 952 + GST10%) 7 647 GST Payable/ Collections (874 000 -$45 600) x 10% = 82 840
Required:
A. Assuming that EchoGnomics uses the direct write-off method of accounting for bad debts:
1. Show the general journal entry required to write-off method of accounting for bad debts.
2. What amount would be shown for bad debts expense in the income statement at 30June 2020?
3. What amount would beshown for accounts receivable in the balance sheet at 30 June2020?
B. Assuming that EchoGnomics uses the allowance method for accounting for bad debts and the following information was found after examination of the accounts:
i] Allowance for doubtful debts (1 July 2019)$7 920 Cr . ii] Allowance calculated based on 1% of net credit sales for the year
1. Show the general journal entries required to write off the bad debts and recognise the required allowance for doubtful debts.
2. What amount would be shown for bad debts expense in the income statement at 30 June 2020?
3. What amount would be shown for accounts receivable in the balance sheet at 30 June 2020?
In: Accounting
| COMPARATIVE BALANCE SHEET | |||
| December 31, | 2019 | 218 | 2017 |
| Assets | |||
| Current assets | |||
| Cash | $ 3,343,212 | $525,710 | $658,079 |
| Marketable Securities | 120,000 | 75,000 | 15,000 |
| Accounts receivable | 1,883,580 | 455,000 | 525,000 |
| Allowance for Bad Debt | (226,030) | (25,000) | (105,000) |
| Interest Receivable | 77,378 | 23,676 | 21,574 |
| Prepaid Advertising | 4,658 | - | - |
| Prepaid Insurance | 312,003 | 139,836 | 148,945 |
| Prepaid Rent | 111,208 | 29,050 | 34,982 |
| Office Supplies | 16,120 | 3,520 | 5,400 |
| Inventory | 757,350 | 975,000 | 775,000 |
| Total Current Assets | 6,399,479 | $2,201,792 | $2,078,980 |
| Non-Current Assets | |||
| Office Furniture | 93,000 | - | - |
| Accumulated Depreciation | (8,400) | ||
| Equipment | 4,760,000 | 5,000,000 | 5,000,000 |
| Accumulated Depreciation | (2,531,000) | (2,000,000) | (1,500,000) |
| Long-Term Notes Receivable | 285,000 | 285,000 | - |
| Land | 1,140,000 | 1,450,000 | 1,450,000 |
| Patent | 82,000 | - | - |
| Accumulated Amortization | (3,417) | ||
| Total Non-Current Assets | 3,817,183 | 4,735,000 | 4,950,000 |
| Total Assets | $ 10,216,662 | $ 6,936,792 | $ 7,028,980 |
Will you show me a vertical analysis of the assets portion of this balance sheet?
In: Accounting
he plant asset and accumulated depreciation accounts of Pell
Corporation had the following balances at December 31,
2020:
| Plant Asset | Accumulated Depreciation |
||||||
| Land | $ | 355,000 | $ | 0 | |||
| Land improvements | 181,500 | 46,000 | |||||
| Building | 1,510,000 | 355,000 | |||||
| Equipment | 1,168,000 | 410,000 | |||||
| Automobiles | 151,000 | 112,500 | |||||
Transactions during 2021 were as follows:
Required:
For each asset classification, prepare a schedule showing
depreciation for the year ended December 31, 2021, using the
following depreciation methods and useful lives:
Land improvements—Straight line; 15 years.
Building—150% declining balance; 20 years.
Equipment—Straight line; 10 years.
Automobiles—Units-of-production; $0.50 per mile
Depreciation is computed to the nearest month and no residual
values are used. Automobiles were driven 38,500 miles in 2021.
(Do not round intermediate calculations and round your
final answers to 2 decimal places.)
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Connor Company is considering the purchase of new equipment for $144,000. The expected life of the equipment is 8 years with no residual value. The equipment is expected to earn revenues of $114,000 per year. Total expenses, including depreciation, are expected to be $90,000 per year. Connor management has set a minimum acceptable rate of return of 20%. Assume straight-line depreciation.
a.
Determine the equal annual net cash flows from operating the
equipment. Round to the nearest dollar.
$
| Present Value of an Annuity of $1 at Compound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.352 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.784 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
b. Calculate the net present value of the new equipment using the present value of an annuity of $1 table above. Round to the nearest dollar. If required, use the minus sign to indicate a negative net present value.
| Annual net cash flow | $ |
| Present value of equipment cash flows | $ |
| Less equipment costs | $ |
| Net present value of equipment | $ |
c.
Does your analysis support the purchase of the new
equipment?
In: Accounting
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