The following information applies to the questions displayed below Web Wizard, I
ID: 2550932 • Letter: T
Question
The following information applies to the questions displayed below Web Wizard, Inc. has provided information technology services for several years. The company uses the percentage of credit sales method to estimate bad debts for internal monthly reporting purposes. At the end of each quarter, the company adjusts its records using the aging of accounts receivable method. The company entered into the following partial list of transactions during the first quarter a During January, the company provided services for $49,000 on credit b. On January 31, the company estimated bad debts using 2 percent of credit sales. c. On February 4, the company collected $24,500 of accounts receivable. d. On February 15, the company wrote off a $100 account receivable. e. During February, the company provided services for $39,000 on credit. f On February 28, the company estimated bad debts using 2 percent of credit sales g, On March 1, the company loaned $3,000 to an employee who signed a 6% note, due in 6 months. h. On March 15, the company collected $100 on the account written off one month earlier On March 31, the company accrued interest earned on the note On March 31, the company adjusted for uncollectible accounts, based on an aging analysis (below). Allowance for Doubtful Accounts has an unadjusted credit balance of $1.290. Number of Days Unpaid Total0-30 31-60 61-90 Over 90 $200 100 $ 80 $ 20 Alabama Tourism Bayside Bungalows Others (not shown to save space) 18,800 7700 9,300 1000 800 Xciting Xcursions 490 490 400 400 Total Accounts Receivable $19,890 $8,200 $9,380 $1,020 $1,290 3% 15% 20% 30%Explanation / Answer
General journal
Debit
credit
a
Accounts receivable
$49,000
Service revenue
$49,000
(Service revenue earned on account)
b
Bad debt expense
980
Allowance for doubtful accounts
980
($49000*2% bad debts)
c
Cash
24500
Accounts receivable
24500
(Amount of account receivable collected)
d
Allowance for doubtful accounts
100
Accounts receivable
100
(written off accounts receivable)
e
Accounts receivable
39000
Service revenue
39000
(service revenue earned on account)
f
Bad debt expense
780
Allowance for doubtfull accounts
780
(39000*2% bad debts)
g
Notes receivable
3000
cash
3000
(loan provided to an employee)
h
Allowance for doubtful accounts
100
Accounts receivable
100
Cash
100
Accounts receivable
100
i
Bad debt expense
954
Allowance for doubtfull accounts
954
(see note below)
j
Interest receivable
15
Interest revenue
15
(3000*6%*1/12)
(Adjustment for uncollectible accounts)
Notes:
Total
0-30
31-60
61-90
over 90
Total Accounts receivable
19890
8200
9380
1020
1290
Estimated Uncollectible
3%
15%
20%
30%
2244
246
1407
204
387
Allowance for doubtful accounts
$2,244
Current
$1,290
Adjustment
$954
Web wizard Inc
Partial Balance sheet
Assets
Current Assets:
$
$
Accounts receivable
$19,890
Less: Allowance for doubtful Accounts
$2,244
Accounts receivable
$17,646
Note receivable
$3,000
Interest receivable
$15
Web Wizard would report
Bad debts
Before
Income from operations
Interest expense
after
Income from operations
General journal
Debit
credit
a
Accounts receivable
$49,000
Service revenue
$49,000
(Service revenue earned on account)
b
Bad debt expense
980
Allowance for doubtful accounts
980
($49000*2% bad debts)
c
Cash
24500
Accounts receivable
24500
(Amount of account receivable collected)
d
Allowance for doubtful accounts
100
Accounts receivable
100
(written off accounts receivable)
e
Accounts receivable
39000
Service revenue
39000
(service revenue earned on account)
f
Bad debt expense
780
Allowance for doubtfull accounts
780
(39000*2% bad debts)
g
Notes receivable
3000
cash
3000
(loan provided to an employee)
h
Allowance for doubtful accounts
100
Accounts receivable
100
Cash
100
Accounts receivable
100
i
Bad debt expense
954
Allowance for doubtfull accounts
954
(see note below)
j
Interest receivable
15
Interest revenue
15
(3000*6%*1/12)
(Adjustment for uncollectible accounts)
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