1 - Texas Tech University



Group Work – Chapter 5Assume McGregor Inc. has the following account balances at December 31, 2018:Balance SheetIncome StatementAccounts Receivable$45,000 Sales$625,000 Allowance For Doubtful Accts($500)Sales Discounts($20,000)Net Realizable Value of AR$44,500 Sales Returns & Allowance($5,000)Net Sales$600,000 If McGregor uses the Balance Sheet Approach and estimates its bad debt for the year to be 9% of the Accounts Receivable balance, prepare the adjusting journal entry as of December 31, 2018. $45,000*.09 = $4,050 Target balance of Allowance AccountAllowance for Doubtful Accounts ?$500??$3,550Adjustment?$4,050Target BalanceDRCRBad Debt Expense$3,550Allowance for Doubtful Accounts$3,550What is the Net Realizable Value of Accounts Receivable after the entry for this approach is posted?Balance SheetAccounts Receivable$45,000 Allowance For Doubtful Accts($4,050)Net Realizable Value of AR$40,950If McGregor uses the Income Statement Approach and estimates it bad debt for the year to be 1% of Net Credit Sales, prepare the adjusting journal entry as of December 31, 2018.$600,000 * .01 = $6,000 Estimation of Bad Debt Expense for Period DRCRBad Debt Expense$6,000Allowance For Doubtful Accounts$6,000What is the Net Realizable Value of Accounts Receivable after the entry for this approach is posted?Balance SheetAccounts Receivable$45,000 Allowance For Doubtful Accts($6,500)Net Realizable Value of AR$38,500On April 2nd, 2019, JD Rhimes comes to you and says they have declared bankruptcy and will not be able to pay their Accounts Receivable debt of $400. Prepare the journal entry to write-off this specific account.DRCRAllowance For Doubtful Accounts$400Accounts Receivable $400How will the write-off of JD Rhimes account affect Net Income? No EffectHow will the write-off of JD Rhimes affect the Net Realizable Value of Accounts Receivable? No EffectDuring 2018, Dawson Inc. wrote off uncollectible accounts in the amount of $21,500. The January 1, 2018 balance in Allowance for Doubtful Accounts is $15,000, and the December 31, 2018 balance in Allowance for Doubtful Accounts is $42,000. What amount must be reported as Bad Debt Expense on the Income Statement for Dawson Inc. for the year 2018?Allowance For Doubtful Accounts?$15,000 Beg Bal?Write Offs$21,500 $48,500 Bad Debt Expense???$42,000 Ending Balancea. On August 1, 2018, McGregor Inc. loaned $90,000 to a key financial officer. The loan is due in 8 months, and it has a 7% rate. The principal and interest are due at maturity. Prepare a journal entry necessary to recognize the loan on August 1. DR CRNote Receivable$90,000Cash$90,000b.December 31, 2018 is the fiscal year-end for McGregor Inc., and they record adjusting journal entries on this date before preparation of financial statement. Prepare an adjusting entry necessary for the loan at year-end. DR CRInterest Receivable$2,625Interest Revenue$2,625($90,000 * .07 * 5/12 = $2,625)On April 1, 2019, McGregor received both the Principal and Interest due on the Note. Prepare a journal entry to record this transaction. DR CRCash$94,200Interest Receivable$ 2,625Note Receivable$90,000Interest Revenue$ 1,575($90,000 * .07 * 3/12 = $1,575)Prepare journal entries for the following Sales transactions entered into by Smith Inc. The company uses the Gross Method to account for Sales Revenue and Sales Discounts.March 2Smith Inc. sold $8,500 worth of goods on account to Jones Inc. with terms of 2/10, net/30 on the Sales Invoice.Accounts Receivable8,500Sales Revenue8,500March 5Smith’s customer, Jones Inc., returned $1,500 worth of goods from the March 2 sale because the goods did not meet standards required by their company. Sales Returns & Allow1,500Accounts Receivable1,500March 9Smith received payment from Jones Inc. for the balance of their account within the Discount period. Cash6,860Sales Discount 140Accounts Receivable7,000 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download