50.1K

Verified Solution

Link Copied!

On August 7, Lett granted Smiley a sales allowance and reduced the cost of the merchandise by $60 because some of the goods were slightly damaged.

On August 12, Smiley paid the account in full.

Exercise 8-2

Information regarding to Hermesch Company for 2008 is summarized below:

Total credit sales	$2,200,000
Accounts receivable at Dec. 31	825,000
	33,000

Instructions

Assume that Hermesch Company estimates its bad debts expense based on 6% of accounts receivable. What amount of bad debts expense will it record if it has an Allowance for Doubtful Accounts debit balance of $3,000?

(1) Write the adjusting entry on Dec 31, 2008.

(2). How is the allowance account presented on the balance sheets?

Exercise 8-3

Leland Company has accounts receivable of $98,100 at March 31. An analysis of the accounts shows the following.

Month of Sales	Balance, March 31
March	$65,000
February	17,600
January	8,500
Prior to January	7,000
	$98,100

Credit terms are 2/10, n/30. At March 31, Allowance for Doubtful Accounts has a credit balance of $1,200 prior to adjustment. The company uses the percentage of receivables basis for estimating uncollectible accounts. The company's estimate of bad debts is as follows.

Age of Accounts	Estimated % Uncollectible
1-30 days	2%
30-60 days	5%
60-90 days	30%
Over 90 days	50%

Instructions

(a) Determine the total estimated uncollectibles.

Accounts receivable	Amount	%	Est. Uncollectible
1-30 days	$65,000	2	$1,300
30-60 days	17,600	5	880
60-90 days	8,500	30	2,550
Over 90 days	7,000	50	3,500
Total			$8,230

(b) Prepare the adjusting entry on March 31 to record bad debts expense.

March 31	Bad debt expense		7,030
		Allowance for doubtful account		7,030

(c). On April 11, Leland Company determined that one customer - Kevin Hayes' account was uncollectible and wrote off $3,000. Prepare the journal entries.

April 11	Allowance for doubtful account		3,000
		Accounts receivable _ Hayes		3,000

(d) What is the net realizable value of accounts receivable before and after writeoff?

	Before writeoff	After writeoff
Accounts receivable	98,100	98,100-3,000=95,100
Less: allowance for doubtful account	8,230	8,230-3,000=5,230
Net realizable value	89,870	89,870

Answer & Explanation Solved by verified expert

See Answer