Question

Task 1 Reporting Net Sales with Credit Sales, Sales Discounts, Sales Returns, and Credit Card Sales E6-3 L02 The following transactions were selected from among those completed by Cadence Retailers in 2011: Nov. 20 Sold 20 items of merchandise to Customer B at an invoice price of $5,500 (total; terms 3/10, n/30 Sold two items of merchandise to Customer C, who charged the $400 sales price on her Visa credit card. Visa charges Cadence Retailersa 2 percent credit card fee Sold 10 identical items of merchandise to Customer D at an invoice price of $9,000 total; terms 3/10,n/30. 25 28 Customer D returned one of the items purchased on the 28th; the item was defective, and credit was given to the customer. Customer D paid the account balance in full. Customer B paid in full for the invoice of November 20,2011 29 Dec. 6 20 Task 2 Recording and Reporting a Bad Debt Estimate Using Aging Analysis Frederick Company uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $275,000, (2) up to 120 days past due, S50,000, and (3) more than 120 days past due, $20,000. Experience has shown that for each age group. the average loss rate on the amount of the receivables at year-end due to uncollect- ability is (1) 3.5 percent, (2) 10 percent, and (3) 30 percent, respectively. At December 31, 2012 (end of the current year), the Allowance for Doubtful Accounts balance is $400 (credit) before the end-of-period adjusting entry is made. Required: 1. Prepare the appropriate bad debt expense adjusting entry for the year 2012. 2. Show how the various accounts related to accounts receivable should be shown on the December 31, 2012, balance sheet.

Answer 1

Part 1

Date	Account Title	Debit $	Credit $
Nov 20	Customer B	5,500.00
	Sales		5,500.00
Nov 25	Bank 400 -(400*2/100)	392.00
	Visa charges	8.00
	Sales		$400.00
Nov 28	Customer D	9,000.00
	Sales		9,000.00
Nov 29	Return inwards ($9,000.00 /10)	900.00
	Customer D		900.00
Dec 6	Cash (Paid with in 10 days discount 3%)	7,857.00
	Discount allowed	243.00
	Customer D		8,100.00
Dec 20	Cash	5,500
	Customer B		5,500

Calculation for amount due from Customers

Customer D = Sales $9,000.00 - Return Inwards $900.00 = amount due $8,100.00

Discount = $8,100 * 3/100 = $243.00

cash received = $8,100 -$243.00 =$7,857.00

Customer B - Invoice $5,500 there is no discount so the payment is for $5,500.00

Task II

1. Calculation for Allowance for doubtful debts

Accounts Receivable Ageing Up to 120 More than Not yet due TOTAL days due 120 days Balance $2,75,000.00 $50,000.00 $20,000.00 $3,45,000.00 Estimated % of doubtfuld 3.50% 10.00% 30.00% Estimated doubtful debts (balance * % of doubtful debts) $9,625.00 $5,000.00 $6,000.00 $20,625.00|

Total allowance for doubtful debts required as on Dec 31, 2012 is $20,625,

Allowance for doubtful debts balance $400.00 (cr)

Additional provision required =$20,625 - $400 = $20,225.00

Date	Account Title	Debit $	Credit $
Nov 20	Bad debts expense	20,225.00
	Allowance for doubtful debts		20,225.00

2. In the balance sheet the accounts receivable account balance will be shown net off allowance for doubtful debts

As on 31 Dec 2012

Accounts receivable - $345,000.00

Total Allowance for doubtful debts $20,625

Balance = $345,000.00 - $20,625.00 =$324,375.00