Question

1)Company XYZ had total credit sales of $1,235,000. Calculate bad debt expense assuming the company estimates bad debt at 1% of sales made during the year (using the income statement approach). Record the journal entry to record the bad debt estimation.

Accounts	Debit	Credit
[ Select ]                    ["Bad Debt Expense", "Accounts Receivable", "Allowance for Doubtful Accounts", "Cash"]	[ Select ]                       ["12,350", "123,500", "1,235", "1,235,000"]
[ Select ]                       ["Allowance for Doubtful Accounts", "Accounts Receivable", "Bad Debt Expense", "Cash"]		[ Select ]                       ["12,350", "1,235,000", "1,235", "123,500"]

2) Geeves Co made $5,000,000 of sales during 2011. The company’s ending A/R balance is $300,000 (debit) and the ending balance in the Allowance for Doubtful Accounts account is $2,000 (credit).

Calculate bad debt expense assuming the company estimates bad debt at 5% of ending A/R (using the balance sheet approach). Record the journal entry to record the bad debt estimation. Don’t forget to factor in the existing Allowance balance.

Accounts	Debit	Credit
[ Select ]                    ["Cash", "Accounts Receivable", "Bad Debt Expense", "Allowance for Doubtful Accounts"]	[ Select ]                       ["2,000", "250,000", "13,000", "15,000"]
[ Select ]                    ["Accounts Receivable", "Allowance for Doubtful Accounts", "Cash", "Cash"]		[ Select ]                      ["13,000", "250,000", "15,000", "2,000"]

3)On October 18, 2020, Reese's Co. accepted a note receivable in the amount of $400,000. The note carries an interest rate of 13% and is due in one year. Calculate the interest amount earned at December 31, 2020. Interest starts accruing on October 19th. Assume a 360 day year. Round to the nearest whole dollar.

$

4) On January 5, 2011, Breaker Ltd receives a $10,000, 90 day, 11% note from a customer (K. Durant) from a sale of services. Record the journal entry for the sale (and acceptance of note) and the journal entry when the note comes due (record all interest earned). Assume a 360 day year.

January 5, 2011:

Accounts	Debit	Credit
[ Select ]                       ["Service Revenue", "Accounts Receivable", "Cash", "Notes Receivable"]	10,000
[ Select ]                       ["Accounts Receivable", "Service Revenue", "Notes Receivable", "Cash"]		10,000

April 5, 2011

Accounts	Debit	Credit
[ Select ]                       ["Cash", "Notes Receivable", "Accounts Receivable", "Interest Revenue"]	[ Select ]                    ["1,100", "10,275", "11,100", "10,000"]
[ Select ]                    ["Interest Expense", "Accounts Receivable", "Notes Receivable", "Cash"]		[ Select ]                    ["11,100", "1,100", "10,000", "275"]
[ Select ]                    ["Interest Revenue", "Cash", "Interest Expense", "Accounts Payable"]		[ Select ]                    ["11,100", "10,275", "275", "1,100"]

5)

G. Love and Special Sauce Inc had $400,000 in sales during 2020. The company’s beginning A/R balance is $25,000 and its ending A/R balance is $32,000.

Calculate A/R Turnover: [select] ["9.78", "14.55", "18.11", "13.21"]      

Calculate Days Sales Outstanding: [select] ["22.8 days", "25.1 days", "29.2 days", "26.4 days"]      

Answer 1

S.no	Date	Accounts	Debit	Credit
1.	Dec 31	Bad debts expense A/c	$12,350
		To Accounts receivable A/c		$12,350
		(being bad debts recorded @1% on Credit sales (1235000*1/100)
2	Dec 31	Bad debts expense A/c	$15,000
		To accounts receivable A/c		$15,000
		(Being bad debts recorded @5% on accounts receivable closing IE 300,000*5/100)
3.	Dec 31	Interest calculation
		(400,000*13/100*13/360=10,369)
4		a)for notes receivable
	Oct 19	Notes receivable A/c	10,000
		To service revenue		10,000
		(Being notes receivable drawn for the sales for 90 days)
		B) when note becomes due
	Dec 31	Cash A/c	10,275
		To notes receivable A/c		10,000
		To interest revenue A/c		275
		(Being interest accrued on notes receivable and assumed it is honoured (10000*11/100*90/360)

5) Accounts receivable turnover ratio (AR TO)

= Net credit sales /Average accounts receivable

Net credit sales = 400,000(assumption having no cash sales)

Average accounts receivable (AAR) =opening AR+Closing Ar/2=25,000+32,000/2=2,8500

ARTO = 400,000/28,500=14.03%

B) Days sales outstanding =Accounts receivable /Credit sales*365

=32,000/400,000*365=29.2 days

B) Days sales oustanding =29.2 days