Question

Some accounting questions I have on Receivables:

1.

Bernie's Ltd. sells goods on terms 2/10, n/30. Gross credits sales for May were $40,000 and for June were $60,000. Analysis of Bernie's Ltd. shows that customer payments on account have the following trends:

	Receiving discount	Beyond discount period	Total
In month of sale	50%	20%	70%
In month following sale	15%	10%	25%
Uncollectible accounts, returns, allowances			5%
			100%

The percentages in the table are of total monthly credit sales. How much cash was collected on customer accounts in June?

$51,280

$34,300

None of the other alternatives are correct

$9,880

$41,400

2.

Choose the term that best matches the following description: Bases bad debt expense on an estimate of uncollectible accounts.

Percentage of Credit Sales Method

None of the other alternatives are correct

Sales Returns and Allowances

Bad debt Expense

Allowance Method

3.

A contra account:

Sits opposite to another related account on the opposite side of the balance sheet

None of the above

Is an offset to its related parent account

Is only found in the income statement in the Cost of Goods Sold section

Is used in the cash basis of accounting but not in accrual accounting

4.

A firm has accounts receivable of $60,000 and a debit balance of $600 in the Allowance for Uncollectible Accounts. Two thirds of the accounts receivable are current and one-third are past due. The firm estimates that 2% of the current accounts and 5% of the past due accounts will prove to be uncollectible. The adjusting entry to provide for uncollectible accounts expense should be for:

$1,800

$1,200

$2,800

$2,400

None of the other alternatives are correct

Answer 1

1	May	40000
	Collection Schedule:
	For the June Month Sales	Sales Receiving Discount	Beyond Discount	Total
	60000	50%	20%
		29400	12000	41400
	*`	(60000*50%*98%)	(60000*20%
	For the May Month Sales
	40000	15%	10%
		5880	4000	9880
		(40000*15%*98%)	(40000*10%)
	Total Collections in June			51280
2	The Allowance Method bases bad debt expense on an estimate of Uncollectible accounts
	The Allowace Method involves setting aside a reserve for bad debts that are expected in the future
	So Answer is Allowance Method
3	A Contra Account offsets the balance in another, related account with which it is paired. So it can be set Contra Account Offsets with its parent account
4
	Account Recieavale Balance	60000	Expected
		Balance	Uncollectible	Uncollectible
	Current Dues(2/3rd)	40000	2%	800
	Past Dues(1/3rd)	20000	5%	1000
			Total	1800
			Less: Opening Balance	-600
			Net Charge	2400
			Answer is 2400