The Benson Company sells phone cards directly to retail outlet stores. Benson se
ID: 2466918 • Letter: T
Question
The Benson Company sells phone cards directly to retail outlet stores. Benson sends the phone cards with an invoice to the stores on the first day of the quarter. Benson allows these stores to return 22 percent of their unsold phone cards. However, based on historical data, normally the stores only returns 16 percent of their phone cards to Benson. These return sales are computed by multiplying 16 percent of Benson’s credit sales. The stores are required to return any unsold phone cards on the last day of the quarter. For this exercise, phone cards in the amount of $2,268,000 were shipped to the stores with invoices on 10/1/15. The stores need to return any unsold phone cards on December 31, 2015. On 1/1/16 Benson shipped $2,700,000 of phone cards with invoices to the stores. The stores need to return any unsold phone cards on March 31, 2016. Also, there are some stores that do not pay their balance owed for the phone cards that they did sell, resulting in bad debts.
The following information relates to Benson's accounts receivable for the 4th Qtr 2015 (includes adjusting and closing entries) and the 1st Qtr 2016 prior to closing entries:
Accounts receivable, 10/1/15 $ 810,000
Credit sales for 4th Qtr 2015 2,268,000
Credit sales for 1st Qtr 2016 2,700,000
Sales returns for 4th Qtr 2015 453,600
Sales returns for 1st Qtr 2016 540,000
Sales discounts for 4th Qtr 2015 16,330
Sales discounts for 1st Qtr 2016 19,440
Estimated bad debt expense for 4th Qtr 2015
based on 3rd Qtr 2015 sales a(recorded 9/30/15) 31,752
Estimated Bad debt expense for 1st Qtr 2016
based on 4th Qtr 2015 sales (recorded 12/31/15) 37,800
Estimated bad debt expense for 2nd Qtr 2016
based on 1st Qtr 2016 sales (recorded 3/31/16) 45,360
Collections from customers during 4th Qtr 2015 1,678,320
Collections from customers during 1st Qtr 2016 1,998,000
Allowance for uncollectible accounts at 12/31/15
Before adjusting entry for bad debts 2,160 Cr
Allowance for uncollectible accounts at 3/31/16
Before adjusting entry for bad debts 2,572 Cr
Allowance for sales returns account at 3/31/16 -0- Cr
Benson uses the gross method of recording accounts receivable. Benson also uses the percent of accounts receivable aging schedule to estimate uncollectible accounts. On 12/31/15 Benson recorded their estimated bad debts for 1st Qtr 2016 to be $37,800. Benson also sets up an allowance for sales returns. On 10/1/15 Benson estimated their sales returns to be $362,800 ($2,268,000 x 16%) and on 1/1/16 Benson estimated sales returns for 1st Qtr 2016 to be $432,000 ($2,700,000 x 16%).
Required:
What amount should Benson report for net accounts receivable at March 31, 2016? Include the adjusting entries, but not the closing entries.
Explanation / Answer
Answer Account Receivable (1) As on 10/01/2015 810000 Credit Sales in 4th quarter 1798070 Cash Collected 1678320 Account Receivable on 12/31/2015 929750 Less Bad Debts Expenses (37800-31752) 6048 Account Receivable on 12/31/2015 923702 (2) As on 01/01/2016 923702 Credit Sales in 4th quarter 2140560 Cash Collected 1998000 Account Receivable on 03/31/2016 1066262 Less Bad Debts Expenses (45360-37800) 7560 Account Receivable on 03/31/2016 1058702 Working Qtr 4 2015 Qtr 1 2016 Credit Sales 2268000 2700000 Less Sales Return 453600 540000 Less discount 16330 19440 Net Credit sales 1798070 2140560
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