The following information was drawn from the accounting records of Chapin Compan

Question

The following information was drawn from the accounting records of Chapin Company. 1. On January 1, Year 1, Chapin paid $56,000 cash to purchase a truck. The truck had a five-year useful life and a $6,000 salvage value. 2. As of December 31, Year 1, Chapin Company had a $68,000 balance in its Accounts Receivable account and a zero balance in its Allowance for Doubtful Accounts account. Sales on account for Year 1 amounted to $320,000. Chapin estimates that 5 percent of credit sales will be uncollectible. Required a. Record the year-end adjusting entry for depreciation expense on the truck in T-accounts. b. Determine the book value of the truck that will appear on the December 31, Year 1, balance sheet. c. Record the year-end adjusting entry of uncollectible accounts expense d. Determine the net realizable value of receivables that will appear on the December 31, Year 1, balance sheet. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Record the year-end adjusting entry for depreciation expense on the truck in T-accounts Stockholders' Equity Depreciation Expense Assets Accumulated Depreciation Debit Credit Debit Credit Required A Required B

Explanation / Answer

Assuming depreciation on straight line method.

Depreciation=(Cost-slavage)/Life of asset

=(560000-6000)/5years

=10,000 per year

a)Depreciation expense T account

  Debit Credit

Depreciation expense-10,000 Accumulated Depreciation-10,0000

Debited Depreciation expense will be charged as administration expense in p&L(Debit P&L)

Accumulated Depreciation will be deducted from asset ledger-Truck to reduce value (Credit asset-Truck from total cost)

b)

Book Value= Cost- Accumulated depreciation

=56000-10000

=46000

c) Allowance for uncollectible debt= Credit sales*5%

( Assuming all sales on Credit)

=320,000*0.05

=16,000

Allowance for doubtfull account

debit credit

uncollectible expense-16000

uncollectible expense account

debit credit

allowance for uncollectible-16000

This is a contra account with Accounts receivable balance Debit to allowance for uncollectible adjusted by( Credited to Accounts Receivable)

d) Receivables opening balance: 68000

less: allowance for Uncollectible debt (16000)

Net Realizable value =52000

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