Question

Damon Company performs an aging analysis to determine the amount of its bad debts expense to record at the end of each year.  At the end of the current year, Damon's aging schedule appeared as follows: Amount Fraction expected to be uncollectible Current receivables $12,000 1% Past-due receivables 1-30 days 2,650 2% 31-60 days 4,050 6% 61-90 days 980 25% 91+ days 630 40% The balance in Damon's Allowance for Doubtful Accounts was $260 negative (i.e.: the bad debt expense in the prior period had been under estimated). Using the information above, what is the amount of Damon’s bad debt expense for the year? a. $   815 b. $2,443 c. $   913 d. $1,173

2. Holmes Company received a purchase order for goods it had in stock in December.  The customer has asked Holmes to hold the goods for several months until it is ready for them.

Can Holmes recognize revenue in December?

	a.	Yes, if Holmes collects payment prior to delivery
	b.	Yes, if the customer has the right to test the product after delivery
	c.	No, because delivery has not taken place
	d.	No, because the customer has not paid for the goods

Answer 1

1)

Category	Amount	*	Fraction expected to be uncollectible	=	Amount estimated to be uncollectible
Current	12000		1%		120
1-30	2650		2%		53
31-60	4050		6%		243
61-90	980		25%		245
91+	630		40%		252
Total	913

Bad debt expense =Amount estimated to be uncollectible at current year - Balance in allowance account

               = 913 - (-260)

               = 913 +260

               = 1173

Correct option is "d"'-1173

2)correct option is "C"

Under revenue recognition principle ,reveneue is recognized at the time it is earned that is risk and reward associated with ownership of asset is transferred to buyer .

In the given case ,asset is still in warehouse of seller and will be transferred when it is ready for use by buyer thus no transfer of ownership has taken place .