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Exam_1_practicequest - Question 1(35 points Brookline Company had the following account balances related to credit sales and receivables

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Question 1 (35 points) Brookline Company had the following account balances related to credit sales and receivables information at the end of 2005: (i) Customers owed the company $125,000 (gross); (ii) Allowance for Doubtful Accounts showed a credit balance of 11,000. During 2006, Brookline Company recorded credit sales of $1,050,000. In 2006, the company also received information that a customer owing $10,000 had gone bankrupt. This amount was written off. The accounts receivable balance (gross) at the end of 2006 was $275,000. Required a. (5 points) How much cash did the company collect from customers during 2006? Amount of cash collected : $890 Calculations 125+1,050-Cash-10=275 Cash=890 b. (6 points) Prepare the journal entry for the amount of bad debt written off during 2006. Journal entry Allowance for Bad Debt 10,000 A/R 10,000 c. (4 points) What was the effect of the bad debt write-off on the company’s 1. Pretax Income for 2006? (circle one) Increase / Decrease / No change 2. Total Net Assets at end of 2006? (circle one) Increase / Decrease / No change d. (8 points) Brookline Company estimates that 2% of its credit sales will prove to be uncollectible. Prepare the adjusting journal entry for bad debt expense for 2006. Journal entry Bad Debt Exp. 21,000 (2%*$1,050,000) Allow. DA 21,000
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e. (12 points) Independent of (d), the credit department of Brookline Company conducted an aging analysis of the accounts receivable at the end of 2006. Excluding the amounts determined to be uncollectible, the aging was as follows: 0-60 days old ------------------------------------ $200,000 61-90 days old ----------------------------------- 50,000 more than 90 days old -------------------------- 25,000 The credit department believes that 2% of the receivables 0-60 days old, 10% of receivables 61- 90 days old, and 30% of receivables more than 90 days old will go bad. Calculate the bad debt expense for 2006 under these assumptions.
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This note was uploaded on 02/29/2012 for the course AC 221 taught by Professor Albuquerque during the Fall '08 term at BU.

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Exam_1_practicequest - Question 1(35 points Brookline Company had the following account balances related to credit sales and receivables

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