1.) Farr Co. elects to use the percentage-of-sales basis in 2017 to record bad d
ID: 2585030 • Letter: 1
Question
1.) Farr Co. elects to use the percentage-of-sales basis in 2017 to record bad debt expense. It estimates that 4% of net credit sales will become uncollectible. Sales revenues are $880,000 for 2017, sales returns and allowances are $43,900, and the allowance for doubtful accounts has a credit balance of $9,200.
Prepare the adjusting entry to record bad debt expense in 2017.
2.)Presented below are data on three promissory notes.
Determine the missing amounts. (Use 360 days for calculation.)
Date of Note
Terms
Maturity
Date
Principal
Annual
Interest Rate
Total
Interest
Date of Note
Terms
Maturity
Date
Principal
Annual
Interest Rate
Total
Interest
May 1May 31August 1August 31September 6September 7
$574,200 5 % $ (b) July 2 30 daysMay 1May 31August 1August 31September 6September 7
75,000 % $500 (c) March 7 6 monthsMay 30May 31August 30August 31September 6September 7
130,200 9 % $Explanation / Answer
1) Net Sales = total sales - sales return & allowances = $880000 - $43900 = $836100
Estimated uncollectable accounts = $836100 * 4% = $33444
Uncollectable accounts expenses (ie. bad debts ) to be booked = estimated uncollectible accounts - previous balance in Allowance for Doubtful Accounts = $33444 - $9200 = $24244
The Adjusting entry for the Bad Debts adjustment :
2) Interest amount = Principle * interest rate * (interest period / Annual period)
a) Total Interest = $574200 * 5% * 60/360 = $4785
b) Annual Interest Rate = ( 500 / 75000 ) * (360 days / 30 days) = 8%
c) Total Interest = $130200 * 9% * 6 months / 12 months = $5859
Date Accounts Titles Debit $ Credit $ Bad Debts Expenses 24244 Allowance for Doubtful Accounts 24244 (being the bad debts expenses booked)Related Questions
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