Question

Financial Accounting Test Review Chapters 7 & 8 Chapter 7 1. At December 31, Yarrow Company reports the following results for its calendar year from the adjusted trial balance. Credit sales $2,300,000 Cash sales 1,050,000 Accounts Receivable 295,000 Allowance for doubtful accounts (credit balance) 750 a. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 1.1% of credit sales. b. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 7.0% of year-end accounts receivable. 2,300.000 < 0.011 = 25.20 Tod deed CR DA 121. Bad debt Exp 25300 Allowance for bad lect 25.3.0 2. Big Company loaned Little Company $10,000. Little Company signed a 90 day promissory note on July 23,2019 with a stated annual interest rate of 5% a. Determine the due date of the note. b. Calculate the interest that will be due on the due date. c. Make the journal entry Big Company would make record the loan re-payment.

Answer 1

Answer -

Chapter 7

1. Answer -

a.

The adjusting entry to record the bad debt expense assuming uncollectibles are estimated to be 1.1% of credit sales

Date	Account title	Debit	Credit
Dec. 31	Bad debt expense	$25300
	Allowance for doubtful accounts		$25300

Calculations :

Bad debt expense = Credit sales * Estimated % on credit sales

Bad debt expense = $2300000 * 1.1%

Bad debt expense = $25300

b.

The adjusting entry to record the bad debt expense assuming uncollectibles are estimated to be 7% of year end accounts receivable

Date	Account title	Debit	Credit
Dec. 31	Bad debt expense	$21400
	Allowance for doubtful accounts		$21400

Calculations :

Here,

Unadjusted bad debt expense = $750

And

Estimated bad debt expense = Credit sales * Estimated % on year end accounts receivable

Estimated bad debt expense = $295000 * 7%

Estimated bad debt expense = $20650

Then,

Adjusted bad debt expense = Unadjusted bad debt expense + Estimated bad debt expense

Adjusted bad debt expense = $750 + $20650

Adjusted bad debt expense = $21400

2. Answer -

a.

Due date of note = 21 October

Explanation :

Days in July	31
Less : Date of the note	23
Days remaining in July		8
Add : Days in August		31
Add : Days in September		30
Add : Days in October to equal 90 days		21

b.

Interest that will be due on the due date

Here,

Loan amount = $10000

Interest rate = 5% annual

Loan period = 90 days

(Note - 1 Year = 360 Days)

So,

Interest amount = [($10000 * 5%) * 90 / 360 days]

Interest amount = [$500 * 90 / 360 days]

Interest amount = $125

c.

The journal entry Big Company would make record the loan re-payment

Date	Account title	Debit	Credit
Oct. 21	Accounts receivable-Little company	$10125
	Notes receivable		$10000
	Interest income		$125

Chapter 8

3. Answer -

a.

The Straight-line method of depreciation

Date	Account title	Debit	Credit
Dec. 31	Depreciation expense	$45000
	Accumulated depreciation		$45000

b.

The Unit of production method of depreciation

Date	Account title	Debit	Credit
Dec. 31	Depreciation expense	$36000
	Accumulated depreciation		$36000

c.

Double-declining balance method of depreciation

Date	Account title	Debit	Credit
Dec. 31	Depreciation expense	$120000
	Accumulated depreciation		$120000

Calculation :

The Straight-line method of depreciation :

Purchase price = $240000

Salvage value = $60000

Life of the assets = 4 years

Depreciation = ($240000 - $60000) / 4 = $180000

Depreciation = 4180000 / 4

Depreciation = $45000 per year

The Unit of production method of depreciation :

Depreciation per unit = (Total Cost - Salvage value)/ Number of units produced in the life of assets

Depreciation per unit = ($240000 - $60000) / 60000 units

Depreciation = $180000 / 60000 = $3 per units

Depreciation of the years = 12000 units * $3

Depreciation of the years = $36000

Double-declining balance method of depreciation :

Double-declining balance = 2 * (Cost of the asset/Useful life)

Double-declining balance = 2 * ($240000/ 4 years)

Double-declining balance = $120000