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____ 4. The following information is from the records of Prosser, Inc. for the y

ID: 2591875 • Letter: #

Question

____    4.   The following information is from the records of Prosser, Inc. for the year ended December 31, 2016.

Allowance for Doubtful Accounts, January 1, 2016 ..

$    6,000

(cr)

Credit Sales, 2016 ...............................

2,920,000

Sales Returns and Allowances, 2016 ................

32,000

If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful accounts expense for 2016 is

a.

$22,800.

b.

$23,200.

c.

$28,880.

d.

$34,880

4b Assume Joe Smith a customer with an account balance of $1,000 is bankrupt.

The controller asks you to write off his account, the journal entry is:

____    5.   Gekko, Inc. reported the following balances (after adjustment) at the end of 2016 and 2015.

12/31/2016

12/31/2015

Total accounts receivable .................

$105,000

$96,000

Net accounts receivable ...................

102,000

94,500

During 2016, Gekko wrote off customer accounts totaling $3,200 and collected $800 on accounts written off in previous years. Gekko's doubtful accounts expense for the year ending December 31, 2016 is

a.

$1,500.

b.

$2,400.

c.

$3,000.

d.

$3,900.

____    7.   Gray Company had an accounts receivable balance of $50,000 on December 31, 2015, and $75,000 on December 31, 2016. The company wrote off $20,000 of accounts receivable during 2016, and collected $3,000 on an account written off in 2014. Sales for the year 2016 totaled $620,000. All sales were on account. The amount collected from customers on accounts receivable during 2016 was

a.

$575,000.

b.

$578,000.

c.

$600,000.

d.

$595,000.

____ 11.   Franchise fees are properly recognized as revenue

a.

when received in cash.

b.

when a contractual agreement has been signed.

c.

after the franchise business has begun operations.

d.

after the franchiser has substantially performed its service.

Allowance for Doubtful Accounts, January 1, 2016 ..

$    6,000

(cr)

Credit Sales, 2016 ...............................

2,920,000

Sales Returns and Allowances, 2016 ................

32,000

Explanation / Answer

4. option c is correct

4b. Entry:

5. option d is correct:

7. option a is correct

11. option D is correct

a Credit sales, net          28,88,000 b Percentage allowance 1.0% c=a*b Bad debt expense                28,880