Question

16) In 2011, Sev en Seas sold $20,000 w orth of merchand ise on account. Its accou ntant estimated that $400 of that amount wou ld be uncoll ectible. In 2011, Saki, a Japanese austomer, purchased $500 of merchandise on account from Seven Seas. In 2012, Saki declared bankruptcy while still owing the $500. What is the amount of bad debtsexpense Seven Seas should report on December 31, 2011? A) $400 B) $500 C) $900 D) $100 17) In preparing the financi al statements for January, the accou ntant for Team Shirts has com pi led the following information: accounts receivable are $5,000; the amount estimated to be uncol lectibleis 10% of receivabl es; sales for the month were $43,000; and the bal ance in the al low ance for uncollectible accountsis a positive $100. Using the accounts receivable allowancemethod, the amount of bad debts expense for January is A) $500 C) $600 B) $100 D) $4,300 18) A year-end review of Accounts Receivable and estimated uncollecti bl e percentages reveal ed the following: Accounts Receivable Percent Uncolledtible Days Outstanding 1-30 days 31-60 days $60,000 $40,000 $20,000 $5,000 2% 4% 61-90 days Over 90 days 10% 50% At the end of the year, the cred it bal ance in Al low ance for Uncollectible A ccou nts w as $1,000. Under the aging- of-receivabl es method, the Unoll ectible- A ccount Expense at year- end is: A) $6,300 D) $8.300 C) $1,200 B) $7,300. 19) Y Company has the fol low ing accounting bal ances at the end of the year before adjustments: A ccounts recei vable $ 25,000 Allowance for uncoll ectible accounts (1,000) 200,000 Net sales Bad debts expense 0 The company estimates that 20% of accounts receivable will be u ncoll ectibl e. After the correct adjusting entry has been made, which of the follow ing is correct about Bad debts expense for the year and Allow anoe for unollectible accounts at the end of the y ear? A) Bad debts expense will be $5,000 on the income statem ent and Allow ance for uncol lectible accounts will be $(5,000) on the bal ance sheet. B) Bad debts expense w ill be $4,000 on the incom e statem ent and Allow ance for uncollectible accounts will be $(4,000) on the balance sheet. C) Bad debts expense will be $4,000 on the incom e statem ent and Allow ance for uncollectible accounts will be $(5,000) on the bal ance sheet. D) Bad debts expense will be $5,000 on the balance sheet and Allow ance for uncollectible accounts will be $(5,000) on the income statement.

Please show work and explain how to solve - options highlighted are correct answers

Answer 1

Here are your explanations starting in reverse order

19.

Accounts Receivable = $25,000
Uncollectible estimate = 20%

Uncollectible amount = 20% X 25,000 = $5,000

Amount already appearing in the Allowance for Uncollectible Accounts = $1,000

Additional provision required = $4,000

Journal Entry would be

Debit Bad Debt Expense $4,000
Credit Allowance for Uncollectible Account $4,000

After this entry, Bad Debt expense on Income Statement would be $4,000
Allowance account already has $1,000. It will have $4,000 more. Total $5,000

Option C is correct

18.

Days Outstanding	Account Receivable	Percent Uncollectible	Allowance amount
	A	B	A X B
1-30 days	$                        60,000	2%	$                         1,200
31-60 days	$                        40,000	4%	$                         1,600
61-90 days	$                        20,000	10%	$                         2,000
Over 90 days	$                          5,000	50%	$                         2,500
			$                         7,300

Allowance account should have a credit balance of $7,300 as per calculation above.
There is already a credit balance of $1,000

Balance required is $6,300. Option A is correct

17.
Account Receivable = $5,000
Estimate uncollectible = 10% of Receivable = $5,000 X 10% = $500

However, there is a DEBIT balance of $100
Total Credit Balance should be $500

Correct entry would be
Debit Bad Debt Expense $600
Credit Allowance for Uncollectible Account $600

16.
The estimate for 2011 is $400. Saki became bankrupt in 2012. There was no information about this bankruptcy at the time of finalization of financial statements so no provision related to Saki would be required.