Question

5. AG Inc. made a $25,000 sale on account with the following terms: 2/10, n/30. If the company uses the net method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale? a. Debit Accounts Receivable for $24,500. b. Debit Accounts Receivable for $24,500 and Sales Discounts for $500. C. Debit Accounts Receivable for $25,000. d. Debit Accounts Receivable for $25,000 and Sales Discounts for $500. 6. On July 22, Peter sold $23,500 of inventory items on credit with the terms 2/15, net 30. Payment on $15,000 sales was received on August 1 and the remaining payment was received on August 12. Assuming Peter uses the gross method of accounting for sales discounts, which one of the following entries was made on August 1 to record the cash received? a. Cash....... 14,700 Sales Discount.. 300 Accounts Receivable.... 15,000 b. Cash. 15,000 Accounts Receivable........ 15,000 C. Cash... 14,700 Accounts Receivable. 14,700 d. Accounts Receivable. 300 Sales Discount Forfeited........ 300 7. Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12.000 in the allowance for doubtful accounts. If the company estimates that 6% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year? a $ 402,000. b. $ 390,000 c. $1,440,000. d. $ 378,000. 8. Sun Inc. factors $6,000,000 of its accounts receivables without recourse for a finance charge of 5%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Sun estimates the fair value of the recourse liability at $230,000. What would be recorded as a gain (loss) on the transfer of receivables? a. Loss of $300,000. b. Gain of $530,000. C. Loss of $1,130,000. d. Loss of $230,000.

Answer 1

5. A company using the net method to record the sale on credit so the journal entry made by the company is Η Ι Ι | Credit S $ Journal Entry 10 Accounts title and explanation 11 Accounts receivable 12 Sales discount Sales revenue 14 (To record the sales revenue on account) Debit S 24,500 500 13 $ 25,000 Therefore the option (b) is correct. Working notes: Credit S 9 Journal Entry 10 Accounts title and explanation 11 Accounts receivable 12 Sales discount 13 Sales revenue | 14 |(To record the sales revenue on account) Debit S =113-H12 =25000*2% 25000 A company using a gross method the journal entry made by the company on August 1 is H Journal Entry 27 Accounts title and explanation 28 Cash 29 Sales discount 30 Accounts receivable | 31 |(To record the cash received from accounts receivable) $ $ Debit Credit S 14,700 300 | $ 15,000

Therefore the option (a) is correct. Working notes: G H 126 Credit S Journal Entry 27 Accounts title and explanation 28 Cash 29 Sales discount 30 Accounts receivable | 31 (To record the cash received from accounts receivable) Debit S =B0-H29 =130*2% 15000 Calculate the bad debt expense recognized for the year. Bad debt expense=Uncollectable accounts receivables-Allowance for doubtful account = ($6,500,000x6%) - $12,000 =$390,000 - $12,000 = $378,000 Therefore the option (a) is correct.

The gain (loss) company recorded at the tansfer of the receivables. Journal Entry Credit S 45 46 Accounts title and explanation 47 Cash 48 Due from factor 49 Loss on sale ofreceivables Accounts receivables $ $ $ Debit $ 5,100,000 600,000 300,000 50 $ 6,000,000 Therefore the option (a) is correct. Working notes: 45 Credit $ | 46 Accounts title and explanation 47 Cash 48 Due from factor 49 Loss on sale of receivables 50 Accounts receivables H Joumal Entry Debit $ =6000000*(100%-10%+59 =6000000*10% =150-H47-H48 6000000