Question

During December, McComb Co. had net credit sales of $1,000,000. On December 1, 2017, the Allowance for Doubtful Accounts had a debit balance of $2,000. Experience indicates that the ending balance in the allowance for doubtful accounts should be 5% of net credit sales (percentage-of-sales basis). If the accounts receivable balance at December 31 was $100,000, what amount should be reported as bad debt expense for the year?

1. 		$48,000
   		$50,000
   		$2,000
   		$52,000

   On April 1, Adams Inc. borrowed $10,000 from Boston Bank, signing a four-month note payable. The note requires interest at an annual rate of 12%, and all interest is payable (due) at maturity. What journal entry would Boston Bank. make at the end of April?

   		Dr. interest expense $100; Cr Interest Payable $100
   		Dr. interest expense $400; Cr Interest Payable $400
   		Dr. interest receivable $100; Cr Interest Revenue $100
   		Dr. interest revenue $400; Cr Interest Revenue $400

Answer 1

Answer

--Question #1

>Correct Answer = Option #4: $ 52,000

Net Credit Sale	$1,000,000
Ending Balance required in Allowance account	$50,000	Credit [1000000 x 5%]
Ending balance of Allowance account available	$2,000	Debit
Bad Debt Expense for the year	$52,000	[$2000 for debit balance + $50000 for credit balance]

--Question #2

>Correct Answer = Option #1: Dr Interest Expense $ 100, Cr Interest payable by $ 100

A	Amount borrowed	$10,000
B = A x 12%	Annual interest at 12%	$1,200
C = B x 1/12	Monthly interest accrued for April	$100