Question

The following data were selected from the records of Sykes Company for the year ended December 31, current year.

Balances January 1, current year
Accounts receivable (various customers)	$	124,000
Allowance for doubtful accounts		9,000

In the following order, except for cash sales, the company sold merchandise and made collections on credit terms 3/10, n/30 (assume a unit sales price of $500 in all transactions).

Transactions during current year

1. Sold merchandise for cash, $274,000.
2. Sold merchandise to R. Smith; invoice price, $10,500.
3. Sold merchandise to K. Miller; invoice price, $38,000.
4. Two days after purchase date, R. Smith returned one of the units purchased in (b) and received account credit.
5. Sold merchandise to B. Sears; invoice price, $26,000.
6. R. Smith paid his account in full within the discount period.
7. Collected $92,000 cash from customer sales on credit in prior year, all within the discount periods.
8. K. Miller paid the invoice in (c) within the discount period.
9. Sold merchandise to R. Roy; invoice price, $27,500.
10. Three days after paying the account in full, K. Miller returned seven defective units and received a cash refund.
11. After the discount period, collected $5,000 cash on an account receivable on sales in a prior year.
12. Wrote off a prior year account of $4,000 after deciding that the amount would never be collected.
13. The estimated bad debt rate used by the company was 1.0 percent of credit sales net of returns.

Required:

1. Using the following categories, indicate the effect of each listed transaction, including the write-off of the uncollectible account and the adjusting entry for estimated bad debts (ignore cost of goods sold). The first transaction is used as an example. (Round your answers to the nearest whole dollar amount. Any decrease in account balances should be indicated by a minus sign.)

2. Show how the accounts related to the preceding sale and collection activities should be reported on the current year income statement. (Round your answers to the nearest whole dollar amount.)

Answer 1

Bad debt expense Calculation a с 1 unit * $500 Sykes Company Transaction Sales Revenue Sales discount (taken) Sales Returns and Allowances 274,000 b 10,500 38,000 d 500 e 26,000 f 300 g 2,845 h 1,140 i 27,500 j (105) 3,500 10000*3% 92000/97*3 38000*3% 39 *3% 7 units * $500 k I m 980 Workings below Totals 376,000 4,180 4,000 980 Note 8 In g, if $92,000 is accounts receivable & not cash collected, then discount to be $2,760 (92,000/100*3) If $92,000 is said to be cash collected from customers, then its after discount of 3% So taking that as 97%, calculate what 3% of sales discount would be $2,845 (92,000/97*3)

Sykes Company Income Statement (partial) For the Year Ended December 31, Current Year Sales Revenue Sales Returns and Allowances 4,000 Sales Discounts 4,180 Net Sales Revenue 376,000 (8,180) 367,820 Operating expenses Bad debt expense Net Income (980) 366,840

Workings

Sykes Company Journal entries Date Account a Cash Sales Revenue Credit Calculation Debit $ 274,000 $ 274,000 $ 10,500 b Accounts Receivable Sales Revenue $ 10,500 с $ 38,000 Accounts Receivable Sales Revenue $ 38,000 d $ 500 1 unit * $500 Sales Returns and Allowances Accounts Receivable $ 500 e $ 26,000 Accounts Receivable Sales Revenue $ 26,000 f Cash Sales Discounts Accounts Receivable $ 9,700 $ 300 10000*3% $ 10,000 10500-500 g Cash Sales Discounts Accounts Receivable $ 92,000 $ 2,845 92000/97*3 $ 94,845 h Cash Sales Discounts Accounts Receivable $ 36,860 $ 1,140 38000*3% $ 38,000 i $ 27,500 Accounts Receivable Sales Revenue $ 27,500 j $ 3,500 Sales Returns and Allowances Sales Discounts Cash 7 units * $500 3500*3% $ 105 $ 3,395 $ 5,000 k Cash Accounts Receivable $5,000 | Allowance for doubtful accounts $ 4,000 Accounts Receivable $ 4,000 m $ 980 Bad debt expense Allowance for doubtful accounts Workings below $ 980 $ 10,500 $ 38,000 $ 26,000 $ 27,500 Workings Bad debt expense Credit Sales b Credit sales c Credit sales e Credit sales i Credit sales Total Credit Sales Returns d Credit sales returns j Credit sales returns Total Total Credit Sales, net of returns Bad debt expense $ 102,000 $ 500 $ 3,500 $ 4,000 $ 98,000 $ 980 98000*1%