Question

Question 2 - [38 MARKS] Catcus Enteprises completed the following selected transactions during the year 20X0 Month July 14 August 15 November 1 Day Event Writes off a $750 accounts receivable arising from a sale to Bradshaw Limited. The transaction took place 10 months ago. Catcus Enterprises uses the allowance method. 30 Catcus Enterprises receives a $1,000, a 90-day, 10% note for merchandise sold to Sunpower Limited (the merchandise cost was $600). Recevied $2,000 cash plus a $10,000 note from Jetwise Limited in exchange for merchandise that sells for $12,000 (its cost is $8,000). The note is dated 15 August, bears 12% interest, and matures in 120 days. Completed a $120 credit card sale with a 4% fee (cost of sales is $150). The cash is received immediately from the credit card company. Sunpower Limited refuses to pay the note that was due to Catcus Enterprises which was issued on 30 July. Prepare the journal entry to change the dishonoured note plus accrued interest to Sunpower Limited's accounts receivable. Completed $500 credit card sale with a 5% fee (the cost of sales is $300). The payment from the credit card company is received on 9 November Received the full amount of $750 from Bradshaw Limited that was previously written off on 14 July. Record the bad debt recovery. Received payment of principal plus interest from Jetwise Limited for the 15 August note. 3 5 15 December 13

Required:

Part A: Prepare the journal entries to record these transactions on Catcus Enterprises books.

Part B: Prepare an adjusting entry as of 31 December 20X0, assuming bad debts are estimated to be $20,400 by aging accounts receivable. The unadjusted trial balance of the Allowance for Doubtful Accounts is $1,000 debit.

Part C: Prepare an adjusting entry as of 31 December 20X0, assuming that bad debts are estimated using the percent sales method. The Allowance for Doubtful Accounts had a $1,000 debit balance before adjustment, and the company estimates bad debts to be 1% of its credit card sales of $2 million.

Answer 1

A.

Date	Account Titles	Debit	Credit
Jul-14	Allowance for Doubtful Accounts	$           750.00
	Accounts Receivable		$           750.00
Jul-30	Notes Receivable	$        1,000.00
	Sales Revenue		$        1,000.00
	Cost of Goods Sold	$           600.00
	Inventory		$           600.00
Aug-15	Notes Receivable	$     10,000.00
	Cash	$        2,000.00
	Sales Revenue		$      12,000.00
	Cost of Goods Sold	$        8,000.00
	Inventory		$        8,000.00
Nov-01	Cash	$           115.20
	Credit Card Charges	$               4.80
	Sales Revenue		$           120.00
	Cost of Goods Sold	$           150.00
	Inventory		$           150.00
Nov-03	Accounts Receivable	$        1,024.66
	Notes Receivable		$        1,000.00
	Interest Revenue		$             24.66
Nov-05	Cash	$           475.00
	Credit Card Charges	$             25.00
	Sales Revenue		$           500.00
	Cost of Goods Sold	$           300.00
	Inventory		$           300.00
Nov-15	Accounts Receivable	$           750.00
	Allowance for Doubtful Accounts		$           750.00
	Cash	$           750.00
	Accounts Receivable		$           750.00
Dec-13	Cash	$     10,394.52
	Notes Receivable		$      10,000.00
	Interest Revenue		$           394.52

B.

Account Titles	Debit	Credit
Bad Debt Expense	$     21,400.00
Allowance for Doubtful Accounts		$      21,400.00

C.

Account Titles	Debit	Credit
Bad Debt Expense	$     20,000.00
Allowance for Doubtful Accounts		$      20,000.00

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