Ch 7, 8 quiz solutions

Ch 7, 8 quiz solutions - FMGT 1321 Chapter 7 & 8 Quiz...

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Student Name __________Key_________________________ Student Number ___________________________ Question 1 The trial balance before adjustment of Rosen Company reports the following balances: Dr. Cr. Accounts receivable $100,000 Allowance for doubtful accounts $ 2,500 Sales (all on credit) 650,000 Sales returns and allowances 40,000 Instructions (a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be (1) seven percent of gross accounts receivable and (2) one percent of net sales. Note that the estimate based on net credit sales is only appropriate as an estimate for internal purposes. At year-end, management must make an estimate based on the year-end receivables balance for the external statements. Solution The percentage of receivables approach would be affected as follows: 2500 9500 7000 Gross receivables $100,000 Rate 7% Total allowance needed 7,000 Present allowance 2,500 Additional amount required $ 9,500 The journal entry is therefore as follows: Bad Debts Expense. ................................................ 9,500 Allowance for Doubtful Accounts. ................. 9,500 Percentage of sales method: (2) Bad Debts Expense. ................................................ 6,100 Allowance for Doubtful Accounts. ................. 6,100
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Ch 7, 8 quiz solutions - FMGT 1321 Chapter 7 & 8 Quiz...

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