Question

Sage Inc. experienced the following transactions for Year 1, its first year of operations:

1. Issued common stock for $120,000 cash.
2. Purchased $200,000 of merchandise on account.
3. Sold merchandise that cost $154,000 for $306,000 on account.
4. Collected $274,000 cash from accounts receivable.
5. Paid $180,000 on accounts payable.
6. Paid $56,000 of salaries expense for the year.
7. Paid other operating expenses of $72,000.
8. Sage adjusted the accounts using the following information from an accounts receivable aging schedule:

Number of Days Past Due	Amount			Percent Likely to Be Uncollectible	Allowance Balance
Current	$	19,200		0.01
0–30		8,000		0.05
31–60		1,600		0.10
61–90		1,600		0.20
Over 90 days		1,600		0.50

c. What is the net realizable value of the accounts receivable at December 31, Year 1?

Answer 1

Journal entries - sage inc.					Aging schedule
						Totals	Allowance %	Allowance needed
1	Cash	120000			Current	19200	1%	192
	Common stock		120000		0 to 30	8000	5.00%	400
					31 to 60	1600	10%	160
2	Merchandise inventory	200000			61 to 90	1600	20%	320
	Accounts payable		200000		Over 90	1600	50%	800
						32000		1872
3	Accounts receivable	306000
	Sales revenue		306000		Part c
	COGS	154000			Current assets:
	Merchandise inventory		154000		Accounts receivable ( 306000 - 274000 )	32000
					Less:- Allowance for doubtful debts	-1872
4	Cash	274000			Accounts receivable, net of allowance		30128
	Accounts receivable		274000
5	Accounts payable	180000
	Cash		180000
6	Salaries exp.	56000
	Cash		56000
7	Operating exp.	72000
	Cash		72000
8	Bad debt exp.	1872
	Allowance for doubtful debts		1872