Financial Accounting, Valix and Peralata
West Co. started its business on January 1, 2007. After considering the collection experience of other companies in the industry, West established an ADA at 5% of credit sales. Outstanding A/R for the end of 2007 totalled 115,000, while the ADA had a credit balance of 12,500 after recording bad debt expense for December and writing off 2,500 worth of uncollectible accounts. Further analysis of the company’s accounts showed that merchandise purchased in 2007 amounted to 450,000 and ending inventory was 75,000. Goods were sold at 40% above cost. 80% of total sales were on account. Total collections from customers, on the other hand, excluding proceeds from cash sales, amounted to 300,000. By how much would the A/R and ADA accounts be misstated at the end of December 31, 2007?
The following data are available on December 31, 2007 for Course Company: Sales
ADA, January 1, 2007
Prepare the adjusting entries for each of the following methods: a. 3% of sales, b. 8% of A/R, c. aging of receivables estimate is 200,000.
At the end of the year, before making any adjustments, the trial balance includes: A/R
Prepare adjusting entries for the following INDEPENDENT assumptions: a. 75% of all sales are on credit and 2% of credit sales would be uncollectible. b. One percent of gross sales may prove uncollectible.
c. Allowance for doubtful accounts should be 10% of outstanding A/R.
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