On December 31, the unadjusted trial balance of Lee’s Coffee Distributor contain
ID: 2435177 • Letter: O
Question
On December 31, the unadjusted trial balance of Lee’s Coffee Distributor contains the following:
Debit
Credit
Accounts Receivable
240,000
Allowance for Doubtful Accounts
3,000
Cash Sales
1,500,000
Credit Sales
950,000
The A/R subsidiary ledger yields the following aging [terms are 1/10, n/30] and subsequent analysis:
Total
Current
1-30 days past due
31-60 days past due
61-90 days past due
More than 90 days past due
$240,000
110,000
60,000
30,000
10,000
30,000
Write-off percentage
1.50%
4.00%
7.00%
10.00%
25.00%
Estimated write-off
Assume that instead of the A/R aging method [% of receivables approach], Lee's Coffee Distributors uses the % of credit sales approach with respect to the allowance method for bad debts, and the prior 5 year history through December 31 of the current year shows write-offs have averaged 1.5% of credit sales. Which one of the following statements is correct (true) as of December 31 of the current yea
On December 31, the unadjusted trial balance of Lee’s Coffee Distributor contains the following:
Debit
Credit
Accounts Receivable
240,000
Allowance for Doubtful Accounts
3,000
Cash Sales
1,500,000
Credit Sales
950,000
The A/R subsidiary ledger yields the following aging [terms are 1/10, n/30] and subsequent analysis:
Total
Current
1-30 days past due
31-60 days past due
61-90 days past due
More than 90 days past due
$240,000
110,000
60,000
30,000
10,000
30,000
Write-off percentage
1.50%
4.00%
7.00%
10.00%
25.00%
Estimated write-off
Assume that instead of the A/R aging method [% of receivables approach], Lee's Coffee Distributors uses the % of credit sales approach with respect to the allowance method for bad debts, and the prior 5 year history through December 31 of the current year shows write-offs have averaged 1.5% of credit sales. Which one of the following statements is correct (true) as of December 31 of the current year?
A. The net A/R reported on the balance sheet would be $225,750
B. The AJE made would include a debit to "bad debt expense" for $11,250
C. The write-off % of 1.5% used for the current year AJE is smaller than the write-off % used to make the prior year AJE.
D. The AJE made would be included as an "outflow of cash" in the operating activities section of the statement of cash flows.
Debit
Credit
Accounts Receivable
240,000
Allowance for Doubtful Accounts
3,000
Cash Sales
1,500,000
Credit Sales
950,000
Explanation / Answer
Assume that instead of the A/R aging method [% of receivables approach], Lee's Coffee Distributors uses the % of credit sales approach with respect to the allowance method for bad debts, and the prior 5 year history through December 31 of the current year shows write-offs have averaged 1.5% of credit sales. Which one of the following statements is correct (true) as of December 31 of the current year? D. The AJE made would be included as an "outflow of cash" in the operating activities section of the statement of cash flows.
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