Question

In: Accounting

Company A had the following events during its final three months of the fiscal year ending...

Company A had the following events during its final three months of the fiscal year ending on May 31, 2017.

(a) March 28: Sold $3,200 of merchandise to Company B. on account.

(b) March 29: Company B. returned $600 of the merchandise purchased on March 28.

(c) April 3: Sold $9,600 of merchandise to Company C.

(d) April 6: Company B. paid off all his purchase (including those made in the past).

(e) April 14: Wrote-off an old account for $6,000 which is related to sales made prior to March 1, 2017.

(f) April 25: Company D. purchased $24,000 of merchandise, paid half in cash

(g) May 30: Company A recovered $2,000 from the receivables that were written off on April 14.

Additional information:

Credit terms: 2/10, n/30

Company B has a balance of $2,000 outstanding as of March 1, 2017, from purchases made on January 10, 2017.

Company A records show the following account balances as of March 1, 2017:

Accounts Receivables ……………………………………… $ 17,000

Allowance for Doubtful Accounts (credit balance)……. 1,000

Net Credit Sales……………………………………….... 191,000

Cash Sales …………………………………….………… 100,000

Required:

1. Prepare the journal entries to record the above transactions.

2. Company A uses the Aging of Accounts Receivables method to determine the amount of receivables that may not be collected in the future according to the following schedule:

Estimated Uncollectible Rate

Not yet Due………………………………….…… 5%

1-30 days past due……………………………….. 10%

31-60 days past due……………………………… 15%

More than 60 days overdue……………………… 20%

Determine the amount of receivables that may not be collected in the future, and prepare the journal entry to record the bad debt expenses on May 31, 2017. Show all your calculations.

3. Suppose uses the Percentage of Credit Sales method to estimate bad debts, using a bad debt rate of 1%. Would Company A incur a higher or lower bad debt expense for the fiscal year ending on May 31, 2017? Show your calculations.

Expert Solution

ekkarill92 answered 2 years ago

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