Question

1.During its first month of operations, Purrfect Pets purchased 6,200 bags of dog food at a cost of $6 a bag and sold all 6,200 bags of dog food on account with payment terms of 2/10, n/30 for $10 each. A total of 2,900 of these bags were sold to customers who paid within the discount period; the other customers paid after the discount period had ended. Sales allowances totaling $200 were granted to customers whose dogs did not like the dog food.

Required:

1. Calculate the gross profit for the month.
2. Calculate the gross profit percentage for the month.

2. Twilight Company uses the aging of accounts receivable method to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 31-90 days old, and (3) more than 90 days old. Based on experience, management has estimated what portion of receivables of a specific age will not be paid as follows: (1) 3%, (2) 17%, and (3) 32%, respectively.

At December 31, 2019, the unadjusted credit balance in the Allowance for Doubtful Accounts was $250. The total Accounts Receivable in each age category were: (1) 1-30 days old, $66,000, (2) 31-90 days old, $14,000, and (3) more than 90 days old, $5,000.

Required:

1. Calculate the estimate of uncollectible accounts at December 31, 2019.
2. Prepare the appropriate adjusting entry dated December 31, 2019.

Answer 1

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