Question

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Reporting Net Sales and Expenses with Discounts, Returns, and Bad Debts (PO-2) The following data were selected from the records of Flawars Company for the year ended revenue as soon as it delivers its products AP6-2 LO6-2,64 December 31, 2017: Balances at January 1, 2017: ACcOunts receivable (various customers) Allowance for doubtful accounts $116,000 The company sold merchandise for cash and on open account with credit terms 1/10, n/30. Assume a unit sales price of $400 in all transactions and use the gross method to record sales revenue. The following transactions occurred during 2017: a. Sold merchandise for cash, $228,000. b. Sold merchandise to Abbeg Corp invoice amount, $12,000. 5,200 e Sold merchandise to Brown Company; invoice amount, $23,6000. d. Abbey paid the invoice in (b) within the discount period. e, Sold merchandise to Cavendish Inc.; invoice amount, $26,000. J. Two days after paying the account in full, Abbeu returmed four defective units and received a cash refund g. Collected $89,100 cash from customers for credit sales made in 2017, alll within the discount periods h. Three days after the purchase date, Brown returned three of the units purchased in (c) and received account credit. i. Brown paid its account in full within the discount period. j Sold merchandise to Decca Corporation; invoice amount, $18,400. K. Cavendish paid its account in full after the discount period. L Wrote off an old account of $2,400 after deciding that the amount would never be collected. m. The estimated bad-debt rate used by the company was 5 percent of accounts receivable at December 31, 2017. Required 1. Using the following categories, indicate the dollar effect (+ for increase,- for decrease, and N for no effect) of each listed transaction, including the write-off of the uncollectible account. and the adjusting entry for estimated bad debts (ignore the cost of sales). The effects of the first transaction are shown as an example. Sales Returns and Sales Discounts (taken) Bad Debt Expense Allowances Sales Revenue 2. Prepare the journal entries for these transactions, including the write-off of the uncollectible account and the adjusting entry for estimated bad debts. Do not record the cost of sales. Show computations for each entry. 3. Show how the accounts related to the preceding sale and collection activities should be reported on the statement of earnings for 2017. (Treat sales discounts as contra-revenues.) a. $228,000 ings Based on the Gross Profit Percentage (P6-3) Cemnanu

Answer 1

Answer to part 1. Sales Return & Bad Debts Sales discount allowances expenses Si no. Sales Revenue + $28,000 + $12,000 + $23,600 + $120 +$26,000 +$1,600 - $16 + $900 +$1,200 +S 224 + $18,400 ZZZZ +$2,200

Answer to part 2 In the books of Fluwars Company General journal sl no. Description Debit Credit $ 28,000 Cash Sales Revenue (being cash sale made) $ 28,000 $ 12,000 Abbey Corp. Sales Revenue (being sales made) $ 12,000 $ 23,600 Brown co. Sales Revenue (being sales made) $ 23,600 11,880 120 Cash IS Sales Discount (12000* 1%) $ Abbey Corp. (being cash received from customer) $ 12,000 IS 26,000 Cavendish Inc. Sales Revenue (being sales made $ 26,000 $ 1,600 Sales Return & allowances (4*400) Cash Sales Discount (1600*19) (being sales return recorded) $ $ 1,584 16 89,100 900 Cash Sales Discount (90000*1%) Accounts Receivable (89100/99%) (being cash received from customer) $ 90,000 1,200 Sales Return (3*400) Brown Co. (being sales return recorded) IS 1,200 $ $ 22,176 224 Cash Sales Discount (22400*1%) Brown Co. (23600-1200) (being cash received) $ 22,400 $ 18,400 Decca Corporation Sales Revenue (being sale made) $ 18,400 $ 26,000 Cash Cavendish Inc. (being cash received) $ 26,000 $ 2,400 Allownace for Doubtful debts Accounts Receivable (being bad debts recorded) $ 2,400 Bad Debts Exepnse (44400*5%) $ 2,220 Allownace for Doubtful debts |(being 5% allownace kept on accounts receivable) $ 2,220 Working- Statement showing balance of accounts Receivable at Dec 31, 2017 Opening Balance as at jan 1,2017 $ Add: Current yr Accounts Receivable (decca corpl$ Less: cash received from opening balance $ Closing Balance as on dec 31,2017 $ 1,16,000 18,400 90,000 44,400

Answer to part 3. Amount In the books of Fluwars Company Statement of earnings for the year ended Dec 31,2017 Amount Sales Revenue Sales Revenue $ 1,08,000 Less: Sales return $ 2,800 Less: Sales Discount $ 1,228 Net Sales Less: Expenses Bad debts $ 1,03,972 $ 2,200 Net income $ 1,01,772