Pebble Company began operations on November 1, Y1. Sales data for the first year
ID: 2486464 • 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 Pebble 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.
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
1) journal
Year 1 Debit Credit Accounts receivables 100000 Sales 100000 Recording of sales Sales return and allowance 1000 Accounts receivables 1000 Returns and allowances on sales Sales Discount 200 Accounts receivables 200 Sales Discount allowed on sales Cash 76800 Accounts receivables 76800 cash received from customer Bad debt expense 2000 Allowances for doubtful account 2000 Allowance is created as 2% of sale = 100000 x 2%, = 2000 Year 2 Accounts receivables 1000000 Sales 1000000 Recording of sales Sales return and allowance 8000 Accounts receivables 8000 Returns and allowances on sales Sales Discount 600 Accounts receivables 600 Sales Discount allowed on sales Cash 761500 Accounts receivables 761500 cash received from customer Bad debt expense 25000 Allowances for doubtful account 25000 Allowance is created as 2.5% of sale = 1000000 x 2.5%, = 25000 3-15 - y2 Allowances for Doubtful account 500 Accounts receivable 500 Amount writteen off 6-15-y2 Allowances for Doubtful account 2100 Accounts receivable 2100 Amount writteen off 9-15-y2 Acccounts Receivables 500 Allowances for Doubtful account 500 Amount Reinstated 9-15-y2 Cash 500 Accounts receivable 500 Amount received , previously written off 10-02-y2 Allowances for Doubtful account 3400 Accounts receivable 3400 Amount writteen off 12-30-y2 Allowances for Doubtful account 5100 Accounts receivable 5100 Amount writteen off Year 3 Accounts receivables 1020000 Sales 1020000 Recording of sales Sales return and allowance 9000 Accounts receivables 9000 Returns and allowances on sales Sales Discount 800 Accounts receivables 800 Sales Discount allowed on sales Cash 1160000 Accounts receivables 1160000 cash received from customer Bad debt expense 24480 Allowances for doubtful account 24480 Allowance is created as 2.4% of sale = 1020000 x 2.4%, = 24480 1-05-y3 Allowances for Doubtful account 4000 Accounts receivable 4000 Amount writteen off 1-20-y3 Allowances for Doubtful account 4500 Accounts receivable 4500 Amount writteen off 5-15-y3 Allowances for Doubtful account 2000 Accounts receivable 2000 Amount writteen off 8-15-y3 Acccounts Receivables 1700 Allowances for Doubtful account 1700 Amount Reinstated 8-15-y3 Cash 1700 Accounts receivable 1700 Amount received , previously written off 9-18-y3 Acccounts Receivables 1000 Allowances for Doubtful account 1000 Amount Reinstated 9-18-y3 Cash 1000 Accounts receivable 1000 Amount received , previously written off 11-20-y3 Allowances for Doubtful account 3500 Accounts receivable 3500 Amount writteen offRelated Questions
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