Answer -
Chapter 7
1. Answer -
a.
The adjusting entry to record the bad debt expense assuming uncollectibles are estimated to be 1.1% of credit sales
Date | Account title | Debit | Credit |
Dec. 31 | Bad debt expense | $25300 | |
Allowance for doubtful accounts | $25300 |
Calculations :
Bad debt expense = Credit sales * Estimated % on credit sales
Bad debt expense = $2300000 * 1.1%
Bad debt expense = $25300
b.
The adjusting entry to record the bad debt expense assuming uncollectibles are estimated to be 7% of year end accounts receivable
Date | Account title | Debit | Credit |
Dec. 31 | Bad debt expense | $21400 | |
Allowance for doubtful accounts | $21400 |
Calculations :
Here,
Unadjusted bad debt expense = $750
And
Estimated bad debt expense = Credit sales * Estimated % on year end accounts receivable
Estimated bad debt expense = $295000 * 7%
Estimated bad debt expense = $20650
Then,
Adjusted bad debt expense = Unadjusted bad debt expense + Estimated bad debt expense
Adjusted bad debt expense = $750 + $20650
Adjusted bad debt expense = $21400
2. Answer -
a.
Due date of note = 21 October
Explanation :
Days in July | 31 | |
Less : Date of the note | 23 | |
Days remaining in July | 8 | |
Add : Days in August | 31 | |
Add : Days in September | 30 | |
Add : Days in October to equal 90 days | 21 |
b.
Interest that will be due on the due date
Here,
Loan amount = $10000
Interest rate = 5% annual
Loan period = 90 days
(Note - 1 Year = 360 Days)
So,
Interest amount = [($10000 * 5%) * 90 / 360 days]
Interest amount = [$500 * 90 / 360 days]
Interest amount = $125
c.
The journal entry Big Company would make record the loan re-payment
Date | Account title | Debit | Credit |
Oct. 21 | Accounts receivable-Little company | $10125 | |
Notes receivable | $10000 | ||
Interest income | $125 |
Chapter 8
3. Answer -
a.
The Straight-line method of depreciation
Date | Account title | Debit | Credit |
Dec. 31 | Depreciation expense | $45000 | |
Accumulated depreciation | $45000 |
b.
The Unit of production method of depreciation
Date | Account title | Debit | Credit |
Dec. 31 | Depreciation expense | $36000 | |
Accumulated depreciation | $36000 |
c.
Double-declining balance method of depreciation
Date | Account title | Debit | Credit |
Dec. 31 | Depreciation expense | $120000 | |
Accumulated depreciation | $120000 |
Calculation :
The Straight-line method of depreciation :
Purchase price = $240000
Salvage value = $60000
Life of the assets = 4 years
Depreciation = ($240000 - $60000) / 4 = $180000
Depreciation = 4180000 / 4
Depreciation = $45000 per year
The Unit of production method of depreciation :
Depreciation per unit = (Total Cost - Salvage value)/ Number of units produced in the life of assets
Depreciation per unit = ($240000 - $60000) / 60000 units
Depreciation = $180000 / 60000 = $3 per units
Depreciation of the years = 12000 units * $3
Depreciation of the years = $36000
Double-declining balance method of depreciation :
Double-declining balance = 2 * (Cost of the asset/Useful life)
Double-declining balance = 2 * ($240000/ 4 years)
Double-declining balance = $120000
Financial Accounting Test Review Chapters 7 & 8 Chapter 7 1. At December 31, Yarrow Company reports the follow...
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