[yader23]

Journalize entries to record allowance for doubtful accounts using two different bases.

The ledger of Elburn Company at the end of the current year shows Accounts Receivable $110,000, sales $840,000, and Sales Returns and Allowances $28,000.

Instructions:

a. If Elburn uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Elburn determines that Copp's $1,400 balance is uncollectible.

b. If allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable.

c. If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.

[srimandini]

1.
Direct Write Off Method

Uncollectible Account Expense $1400
Accounts Receivable $1400


2.
(1) – 1% Net Sales

Net Sales = Sales – Returns = $840,000-$28,000 = $812,000
1% of Net Sales = 1%*$812,000 = $8,120

Adjusting Entry
Uncollectible Account Expense $8120
Allowance for Doubtful Accounts $8120


(2) --- 10% of accounts receivable
Accounts Receivables = $110,000
10% of Accounts Receivables = $110,000*10% = $11,000
Less: Credit Balance in allowance account = $2100
Amount to be charged = $8900


Adjusting Entry
Uncollectible Account Expense $8900
Allowance for Doubtful Accounts $8900


3
(1) – .75% Net Sales

Net Sales = Sales – Returns = $840,000-$28,000 = $812,000
.75% of Net Sales = .75%*$812,000 = $6090

Adjusting Entry
Uncollectible Account Expense $6090
Allowance for Doubtful Accounts $6090


(2) --- 6% of accounts receivable
Accounts Receivables = $110,000
6% of Accounts Receivables = $110,000*6% = $6,600
Add: Debit Balance in allowance account = $200
Amount to be charged = $6800


Adjusting Entry
Uncollectible Account Expense $6800
Allowance for Doubtful Accounts $6800

[yader23]

Identify whether obligations are current liabilites
Cardinal Company has the following obligations at December 31:
a) a note payable for $100,000 due in 2years
b) a 10-year mortgage payable of $300,000 payable in ten $30,000 annual payments
c) interest payable of $15,000 on the mortgage, and
d) accounts payable of $60,000.
For each obligation, indicate whether it should be classified as a current liability.
Assume an operating cycle of less than one year!