The following information was taken from the records of Alphabet Soup at the end

Question

The following information was taken from the records of Alphabet Soup at the end of 2012:

Determine the following:

A) Gross sales

B) Net sales

C) Gross Profit

Assuming the company uses the income statement approach to estimating uncollectibles:

D) Bad debt estimate percentage

F) Ending balance in Allowance for Doubtful Accounts after adjustment

G) Net realizable value of receivables after adjustment for bad debts

Assuming the company uses the balance sheet approach to estimating uncollectibles:

H) Gross receivables

Cash sales $1,000,000 Credit sales 500,000 Sales discounts 5,000 Accounts Receivable 250,000 Allowance for Doubtful Accounts (before adjustment) (25,000) Estimated uncollected accounts 2,475 Cost of goods sold $975,000

Explanation / Answer

Here is the answer-

A) Gross sales

Cash sales+Credit sales

$1,000,000 + 500,000 = $1,500,000

B) Net sales

Cash sales+Credit sales- Sales discounts

$1,000,000 + 500,000 -5,000 = $1,495,000

C) Gross profit

Net sales- Cost of goods sold

$1,495,000 -$975,000 = $520,000

Assuming the company uses the income statement approach to estimating uncollectibles:
D) Bad debt estimate percentage

Estimated uncollected accounts /Net credit sales

2,475/$495,000

= 0.5%

F) Ending balance in Allowance for Doubtful Accounts after adjustment

$25,000 (begining balance) + $2,475 (Adjustment)

= $27,475

G)  Net realizable value of receivables after adjustment for bad debts

A/R - Allowance for Doubtful Accounts

=$250,000- $27,475

$222,525

H) Gross receivables=

$250,000

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