Question

Bramble Corp. will invest $88000 every December 31st for the next six years (2020 – 2025). If Bramble will earn 13% on the investment, what amount will be in the investment fund on December 31, 2025?

$827609.

$732398.

$397518.

$351783

Sheffield Corp. has outstanding accounts receivable totaling $1.25 million as of December 31 and sales on credit during the year of $6.20 million. There is also a debit balance of $6100 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

$25000.

$31100.

$24878.

$18900.

Answer 1

Part 1) 2nd Option)$732,398

In order to calculate Future value of investment we will use Future Value of annuity factor:

Future Value of Annuity(F)=A{[(1+r)^n]-1/r}

Where,

A=Annuity Amount= 88000

r=ROI= 0.13

n=No. of periods= 6

Now putting values in formula,

= 88000{[(1+ 0.13)^6 ]-1/ 0.13}

= 88000{[( 1.13)^6 ]-1/ 0.13}

= 88000{[ 2.08195 ]-1/ 0.13}

= 88000{ 1.08195 / 0.13}

= 88000{ 8.32271}

= 732398.10946

Part 2)1st Option)$25,000

If 2% of account receivables are considered uncollectibles for allowance, then allowance required=1250000*2%=$25,000

*Please do not confuse with adjustment required, as bad debt expense debited will be = allowance required+debt balance=25000+6100=$31,100. However, after adjustment balance would be $25,000 as asked in the question.

Also, $1.25 Million is already the remaining balance after writing of all uncollectibles (Obviously because Allowance can have debit balance only after crediting receivables.)

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