The following information was drawn from the accounting records of Chapin Compan
ID: 2413973 • Letter: T
Question
The following information was drawn from the accounting records of Chapin Company. 1. On January 1, Year 1, Chapin paid $56,000 cash to purchase a truck. The truck had a five-year useful life and a $6,000 salvage value. 2. As of December 31, Year 1, Chapin Company had a $68,000 balance in its Accounts Receivable account and a zero balance in its Allowance for Doubtful Accounts account. Sales on account for Year 1 amounted to $320,000. Chapin estimates that 5 percent of credit sales will be uncollectible. Required a. Record the year-end adjusting entry for depreciation expense on the truck in T-accounts. b. Determine the book value of the truck that will appear on the December 31, Year 1, balance sheet. c. Record the year-end adjusting entry of uncollectible accounts expense. d. Determine the net realizable value of receivables that will appear on the December 31, Year 1, balance sheet.Explanation / Answer
Answers
Working----
A
Cost of Truck
$ 56,000.00
B
Salvage Value
$ 6,000.00
C=A-B
Depreciable base
$ 50,000.00
D
Useful Life (in years)
5
E=C/D
Annual SLM Depreciation
$ 10,000.00
Date
Account Titles
Debit
Credit
31-Dec
Depreciation Expense
$ 10,000.00
Accumulated Depreciation (Truck Equipment)
$ 10,000.00
(depreciation expense recorded)
Depreciation expense
31 Dec Adjustment
$ 10,000.00
Accumulated Depreciation (Truck Equipment)
31 Dec Adjustment
$ 10,000.00
Truck
1 Jan Cash
$ 56,000.00
Book Value of Truck that will appear on 31 Dec balance Sheet:
Cost of Truck
$ 56,000.00
Accumulated Depreciation
$ (10,000.00)
Book Value on 31 Dec
$ 46,000.00
Working
A
Total Credit Sale
$ 3,20,000.00
B=A x 5%
Uncollectible Accounts Expense for the year [5% of above]
$ 16,000.00
Assets
Stockholder's Equity
Allowance for Doubtful Accounts
Uncollectible Accounts Expense
Debit
Credit
Debit
Credit
$ 16,000 [Uncollectible Accounts expense]
$ 16,000 [Allowance account]
Gross Accounts Receivables
$ 68,000.00
Allowance for Doubtful Accounts
$ (16,000.00)
Net Realizable Value of receivables on Dec 31 Balance Sheet
$ 52,000.00
A
Cost of Truck
$ 56,000.00
B
Salvage Value
$ 6,000.00
C=A-B
Depreciable base
$ 50,000.00
D
Useful Life (in years)
5
E=C/D
Annual SLM Depreciation
$ 10,000.00
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