Illustrative Problem PDF

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Illustrative Problem...

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ILLU ILLUSTR STR STRATIV ATIV ATIVE E PR PROBL OBL OBLEM: EM: ABC Company reported the following information before adjustments at year-end: Accounts receivable Notes receivable Allowance for doubtful accounts Sales Sales return and allowances Sales discount

500,000 200,000 20,000 5,000,000 30,000 20,000

Req Require uire uired: d: Prepare adjusting entry to provide for doubtful accounts under each of the following independent assumptions:

1. Past experience indicates that 75% of all sales are credit sales and that an average 2% of credit sales may prove uncollectible.

2. One percent of gross sales may prove uncollectible. 3. An analysis of the aging of trade receivables indicates that accounts receivable in the amount of P80,000 may prove uncollectible.

4. The policy is to maintain an allowance for doubtful accounts equal to 10% of the outstanding accounts receivable. ANSWERS: 1. Credit sales (75% x 5,000,000) Doubtful accounts (2% x 3,750,000)

37,500 75,000

Doubtful accounts

75,000

Allowance for doubtful accounts

75,000

2. Doubtful accounts(1% x 5,000,000) Allowance for doubtful accounts 3. Required Allowance Less: Credit balance of allowance Doubtful accounts expense

75,000 75,000 80,000 20,000 60,000

Doubtful accounts Allowance for doubtful accounts 4. Required Allowance (10% x 500,000) Less: Credit balance of allowance Doubtful accounts expense Doubtful accounts Allowance for doubtful accounts

60,000 60,000 50,000 20,000 30,000 30,000 30,000...