On December 31, the unadjusted trial balance of Lee’s Coffee Distributor contain
ID: 2435169 • Letter: O
Question
On December 31, the unadjusted trial balance of Lee’s Coffee Distributor contains the following:
Debit
Credit
Accounts Receivable
240,000
Allowance for Doubtful Accounts
3,000
Cash Sales
1,500,000
Credit Sales
950,000
The A/R subsidiary ledger yields the following aging [terms are 1/10, n/30] and subsequent analysis:
Total
Current
1-30 days past due
31-60 days past due
61-90 days past due
More than 90 days past due
$240,000
110,000
60,000
30,000
10,000
30,000
Write-off percentage
1.50%
4.00%
7.00%
10.00%
25.00%
Estimated write-off
1. Which one of the following statements is correct if the A/R aging method (% of receivables approach) is used with respect to making the AJE at the end of the year, December 31?
A. The AJE would include a debit to "bad debt expense" for $11,650
B. The write-off percentages [e.g. 1.5% for current] are normally gotten from a trade magazine related to the industry in which a company operates [e.g. a coffee growers/distributors magazine in this problem]
C. Total "Sales" reported on the income statement = $950,000
D. The net A/R reported on the balance sheet would be $222,350
2. Which one of the following statements is correct (true) with respect to the "allowance for doubtful accounts"?
A. reduces A/R to its "future economic benefit"
B. is closed out at the end of the year
C. normally has a zero balance in it until the end of the year when adjusting entries are made
D. has a normal debit balance
Debit
Credit
Accounts Receivable
240,000
Allowance for Doubtful Accounts
3,000
Cash Sales
1,500,000
Credit Sales
950,000
Explanation / Answer
1. Which one of the following statements is correct if the A/R aging method (% of receivables approach) is used with respect to making the AJE at the end of the year, December 31? A. The AJE would include a debit to "bad debt expense" for $11,650 ------------------------------------------------------------------------------------- 2. Which one of the following statements is correct (true) with respect to the "allowance for doubtful accounts"? A. reduces A/R to its "future economic benefit"
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