ACT 6692 Mod 12 Assignments Answers

ACT 6692 Mod 12 Assignments Answers - ACT 6692 Module 12...

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Unformatted text preview: ACT 6692 Module 12 – Assignment (Problems) Solutions 12-1 — Entries for bad debt expense The trial balance before adjustment of Pratt Company reports the following balances: Dr. Cr. Accounts receivable $100,000 Allowance for doubtful accounts $ 2,500 Sales (all on credit) 750,000 Sales returns and allowances 40,000 Instructions (a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be (1) 6% of gross accounts receivable and (2) 1% of net sales. (b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $2,500 instead of a credit balance. How will this difference affect the journal entries in part (a)? Solution 12-1 (a)(1)Bad Debt Expense................ 3,500 Allowance for D/Accts.... 3,500 Gross receivables $100,000 Rate 6% Total allowance needed 6,000 Present allowance (2,500 ) Bad debt expense $ 3,500 (2)Bad Debt Expense................ 7,100 Allowance for D/Accts.... 7,100 Sales $750,000 Sales returns/allowances (40,000 ) Net sales 710,000 Rate 1% Bad debt expense $ 7,100 (b) The percentage of receivables approach would be affected as follows: Gross receivables $100,000 Rate 6% Total allowance needed 6,000 Present allowance 2,500 Additional amount required $ 8,500 The journal entry is therefore as follows: Bad Debt Expense................ 8,500 Allowance for D/Accts.... 8,500 The entry would not change under the percentage of sales method. 12-2 — Accounts receivable assigned Prepare journal entries for Lott Co. for: (a) Accounts receivable in the amount of $500,000 were assigned to Vance Finance Co. by Lott as security for a loan of $425,000. Vance charged a 3% commission on the accounts; the interest rate on the note is 12%. (b) During the first month, Lott collected $200,000 on assigned accounts after deducting $450 of discounts. Lott wrote off a $530 assigned account. (c) Lott paid to Vance the amount collected plus one month's interest on the note. Solution 12-2 (a) Cash........................................ 410,000 Finance Charge........................ 15,000 Notes Payable.............. 425,000 (b) Cash........................................200,000 Sales Discounts........................ 450 Allowance for Doubtful Accounts 530 Accounts Receivable............ 200,980 (c) Notes Payable.......................200,000 Interest Expense.......................... 4,250 Cash....................................... 204,250 12-3—Factoring Accounts Receivable On May 1, Carter, Inc. factored $800,000 of accounts receivable with Rapid Finance on a without recourse basis. Under the arrangement, Carter was to handle disputes concerning service, and Rapid Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Rapid Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts....
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ACT 6692 Mod 12 Assignments Answers - ACT 6692 Module 12...

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