Question

Sales and Aging of Accounts Receivable Methods Innovative Tech Inc. (ITT) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November, ITI sold services on account for $100,000 and estimated that h of one percent of those sales would be uncollectible. At its December 31 year-end, total Accounts Receivable is $89,000, aged as follows: (1) 1-30 days old, $75,000; (2) 31-90 days old, $10,000; and (3) more than 90 days old, $4,000. Experience has shown that for each age group, the average rate of uncollectibility is (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,600 credit balance at December 31. Required: 1. Prepare the November adjusting entry for bad debts. 2. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts. 3. Prepare the December 31 adjusting entry 4. Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet Question 2 (24 score) Consider the following information for Maynor Company, which uses a perpetual inventory system: Transaction Units Unit Cost Total Cost January 1 March 28 Beginning Inventory10 $60 Purchase Purchase Purchase 20 20 25 75 600 1,320 1,400 1,900 $5,220 August 22 October 14 70 76 Goods Available for Sale The company sold 25 units on May 1 and 20 units on October 28. Required: Calculate the company's ending inventory and cost of goods sold using the each of following inventory costing methods. Part a. FIFO Part b. LIFO Part c. Weighted Average

Answer 1

SOLUTION:

1)

	Debit	Credit
Bad Debt Expense	500
Allowance for DA		500
($100,000 * 0.005)

　

2)

Total	1 - 30	31-90	>90
$89,000	$75,000	$10,000	$4,000
	10%	20%	40%
$11,100	$7,500	$2,000	$1,600

　

3) Dr. Bad debt expense $9,500

Cr. Allowance for doubtful accounts $9,500

Allowance for Doubtful Accounts
	1600	Unadjusted balance
	9,500	Adjusted journal entry
	11,100	Balance

　

4)The accounts related to the accounts receivable can be depicted in any of the following two ways on the balance sheet on December 31.

Accounts Receivable	89,000
Minus: Allowance for Doubtful Accounts	-11,100
Accounts Receivable, net of allowance	$77,000

or,

Accounts Receivable, the net of Allowance for Doubtful Accounts will equal $11,100