At December 31, Banana Company reports the following results for its calendar year from the adjusted trial balance. I. Credit sales Cash sales Accounts Receivable Allowance for doubtful accounts (credit balance) Php 8,100,000 2,350,000 412,000 13,000 Required: Prepare the adjusting entry to record Bad Debts Expense using the following independent methods: a. Sales Method, assuming estimated bad debts is 1% b. Accounts Receivable Method, assuming bad debts is 18% c. Aging of Accounts Receivable, assume the following: 1 50% are current accounts, estimated uncollectible for current accounts is 1% ii. 30% are over 31 days to 90 days, estimated uncollectible accounts is 20% iii. 20% are over 90 days, estimated uncollectible accounts is 50%
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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At December 31, Banana Company reports the following results for its calendar year from
the adjusted trial balance.
I.
Credit sales
Cash sales
Accounts Receivable
Allowance for doubtful accounts (credit
balance)
Php 8,100,00o
2,350,000
412.000
13,000
Required:
Prepare the adjusting entry to record Bad Debts Expense using the following independent
methods:
a. Sales Method, assuming estimated bad debts is 1%
b. Accounts Receivable Method, assuming bad debts is 18%
c. Aging of Accounts Receivable, assume the following:
50% are current accounts, estimated uncollectible for current accounts is 1%
30% are over 31 days to 90 days, estimated uncollectible accounts is 20%
20% are over 90 days, estimated uncollectible accounts is 50%
111.
Lemon Company allows customers to make purchases on credit. The terms of all credit sales
are 2/10, n/30, and all sales are recorded at the gross price. Other customers can use a bank
credit card where the bank deducts a 4% service charge for credit card sales and credits the
bank account of Lemon immediately when credit card receipts are deposited. White uses the
perpetual inventory method.
II.
June
Sold Php12,000 of merchandise (cost Php7,000) on credit to Grant Inc.
Sold Php17,000 of merchandise (cost Php 9,350) to Libby Corp. who
used
day
bank credit card, receipts were processed and deposited the same
6.
Sold Php8,500 of merchandise (cost Php 4,500) on credit to Emma
Company.
Accepted a Php 50,000, 45-day, 6% note dated this day in granting Cory
Tam a time extension on his past-due account receivable.
8
10
Received Grant's check in full payment of the purchase on June 4.
Wrote off the account of Z. Westmore against the Allowance for
Doubtful Accounts. The Php 1,580 balance stemmed from a credit sale in
January.
Accepted a Php 75,000, 30-day, 10% note dates this day in granting F.
Potter a time extension on his past-due account receivable.
12
15
20
July
Received the amount previously written-off from Z. Westmore.
F. Potter dishonored his note when presented for payment.
17
20
25
Received payment of principal plus interest from Cory Tam.
Prepare journal entries to record the above selected transactions and events.
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