sales discoumts with terms 2/10 sales discoumts with terms 2/10 sales discoumts
ID: 2601591 • Letter: S
Question
sales discoumts with terms 2/10 sales discoumts with terms 2/10 sales discoumts with terms 2/10Wholesale Warehouse Stores sold $950,000 in merchandise during 2014. Of this amount, $400,000 was on credit with terms 2/10, n/30 (75 percent of these amounts were paid within the discount period), $500,000 was paid with credit cards (there was a 3 percent credit card discount), and the rest was paid in cash. On December 31, 2014, the Accounts Receivable balance was $80,000. The beginning balance in the Allowance for Doubtful Accounts was $9,000 and S6,000 of bad debts was written off during the year. Required: 1. Compute net sales for 2014, assuming that sales and credit card discounts are treated as contra-revenues. 2. Assume that Wholesale uses the percentage of sales method for estimating bad debt expense and that it estimates that 2 percent of credit sales will produce bad debts. Record bad debt expense for2014. 3. Assume instead that Wholesale uses the aging of accounts receivable method and that it estimates that $10,000 worth of current accounts is uncollectible. Record bad debt expense for 2014.
Explanation / Answer
Solution 1:
Credit Sales = $400,000
Credit card sales = $500,000
Discount on credit card sales = $500,000*3% = $15,000
Cash Sales = $950,000 - $400,000 - $500,000 = $50,000
Net Sales = $400,000 + $500,000 + $50,000 - $15,000 = $935,000
Solution 2:
Estimated bad debts = 2% of credit sales = $400,000*2% = $8,000
Opening balance for allowance for doubtful accounts = $9,000
Bad debts written off during the year = $6,000
Bad debts expensed to be recognized for year 2014 = $8,000 + $6,000 - $9,000 = $5,000
Journal entry:
Bad debts A/c Dr $5,000
To Allowance for doubtful accounts Cr $5,000
Solution 3:
Estimated bad debts for 2014 = $10,000
Opening balance for allowance for doubtful accounts = $9,000
Bad debts written off during the year = $6,000
Bad debts expensed to be recognized for year 2014 = $10,000 + $6,000 - $9,000 = $7,000
Journal entry:
Bad debts A/c Dr $7,000
To Allowance for doubtful accounts Cr $7,000
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