Pebble Company began operations on November 1, Y1. Sales data for the first year
ID: 2486059 • Letter: P
Question
Pebble Company began operations on November 1, Y1. Sales data for the first years of operations were as follows:
Year
Total Credit Sales
Sales Returns & Allowances
Sales Discounts
Y1
$100,000
$1,000
$200
Y2
$1,000,000
$8,000
$600
Y3
$1,020,000
$9,000
$800
All sales to customers are made on account. Collections on the accounts receivable were:
Year
Cash Collections
Y1
$76,800
Y2
761,500
Y3
1,160,000
Some customers of Marcus Baides Company have not paid their bills on time, and the company decided to write off those accounts receivable balances. A schedule of write-offs follow:
Customer Name
Date of the write off
Amount of the write-off
Devin Brunet
3-15-Y2
$500
Will Carter
6-15-Y2
$2,100
Paige Daneau
10-02-Y2
$3,400
T. Douillette
12-30-Y2
$5,100
Rene Dubois
1-05-Y3
$4,000
Teri O’Brien
1-20-Y3
$4,500
Sofia Pantazis
5-15-Y3
$2,000
R. Ribeiro
11-20-Y3
$3,500
In some cases, after the receivable was written off, the customer subsequently paid some or all of the balance that was due. These subsequent payments are not included in the cash receipts noted above. The following schedule shows these payments of delinquent accounts:
Customer Name
Original A/R
Dollar Amount
Date A/R Written Off
Date
Reinstated
Amount
Customer
Pledged to Pay
Date Cash Collected
Amount of Cash Collected
Devin Brunet
$500
3-15-Y2
9-15-Y2
$500
9-15-Y2
$500
Rene Dubois
$4,000
1-05-Y3
4-15-Y3
$4,000
8-15-Y3
$1,700
Sofia Pantazis
$2,000
5-15-Y3
9-18-Y3
$2,000
9-18-Y3
$1,000
PART A: Assume Pebble Company uses the income statement approach of recording bad debt. Bad debt allowance percentages are:
Year
Bad Debt Percentage
Y1
2.0%
Y2
2.5%
Y3
2.4%
REQUIRED:
1.Prepare all journal entries necessary to record the accruals, write-offs, write-off reversals and cash collected on write-off reversals for years Y1, Y2, and Y3.
2.Using the “T” account tool, demonstrate the activity in the Allowance for Doubtful Accounts account for the one year period ending December 31, Y3.
3.Show the calculation of the Net Realizable Value of the receivables at December 31, Y3.
PART B: Assume Pebble Company uses the balance sheet approach to record the Allowance for Doubtful Accounts account. Data for Part B is as follows:
Year
Allowance %
Y1
8.0%
Y2
8.4%
Y3
8.6%
REQUIRED:
1.Prepare all journal entries necessary to record the accruals, write-offs, write-off reversals and cash collected on write-off reversals for years Y1, Y2, and Y3.
2.Using the “T” account tool, demonstrate the activity in the Allowance for Doubtful Accounts account for the one year period ending December 31, Y3.
3.Show the calculation of the Net Realizable Value of the receivables at December 31, Y3.
Year
Total Credit Sales
Sales Returns & Allowances
Sales Discounts
Y1
$100,000
$1,000
$200
Y2
$1,000,000
$8,000
$600
Y3
$1,020,000
$9,000
$800
Explanation / Answer
Journal entries -Income statement approch
Year 1
Bad debts expenses a/c $ 1976
To Bad debt allownaces a/c $ 1976
Year 2
Bad debts expenses a/c $ 24785
To Bad debt allownaces a/c $ 24785
Year 3
Bad debts expenses a/c $ 24244
To Bad debt allownaces a/c $ 24244
Year Total Credit Sales Sales Returns & Allowances Sales Discounts Provision to be made on (net sales) Bad debt expenses Cash recived Y1 100000 1000 200 98800 1976 76800 Y2 1000000 8000 600 991400 24785 761500 Y3 10,20,000 9,000 800 1010200 24244.8 1160000Related Questions
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