Question 1: As the accountant for Omar Company, you attend a sales managers meeting devoted to a discussion of credit policies. At the sales managers meeting, you mention that Bad Debts expense estimated to be $59,000 and Accounts Receivable at year amount to be $1,750,000, less a $43,000 allowance for Doubtful accounts. Yousef, a sales manager, expresses confusion over why Bad Debts expense and the allowance for Doubtful accounts are different amounts.
Required: Write a one-page to Yousef, the sales manager, explaining why a difference in Bad Debts expense and the allowance for Debt Doubtful accounts is not unusual. The company estimates bad debt expense as 2% of sales.
Question 2: Alsalam Center had the following petty cash transactions in July of the last year:
July 5, Wrote a $200 check, cashed it, and gave the proceeds and the petty cashbox to Nasser Khaled, the petty cashier.
July 6, Paid $14.50 COD shipping charges on merchandise purchased for resale, terms FOB shipping point. Alsalam uses the perpetual system to account for merchandise inventory.
July 11, Paid $8.75 delivery charges on merchandise sold to a customer, terms FOB destination.
July 12, Purchased file folders for $12.13 that are immediately used.
July 14, Reimbursed Waled Nasser, the manager, $9.65 for office supplies purchased and used.
July 18, Purchased printer paper for $22.54 that is immediately used.
July 27, Paid $47.10 COD shipping charges on merchandise purchased for resale, terms FOB shipping point.
July 28, Paid postage expenses of $16.
July 30, Reimbursed Sultan $58.80 for business car mileage.
July 31, Cash of $11.53 remained in the fund. Sorted the petty cash receipts by accounts affected and exchanged them for a check to reimburse the fund for expenditures.
July 31, The pretty cash fund amount is increased by $50 to a total $250.
Required:
1. Prepare the journal entry to establish the petty cash fund.
2. Prepare the journal entries for both (a) reimburse and (b) increase the fund amount.
Question 3: Sultan Company has credit sales of $2.60 million for year 2016. On December 31, 2016, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $14,905. Sultan prepares a schedule of its December 31, 2016, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.
December 31, 2011 Accounts Receivable
Age of Accounts Receivable
Expected Percent Uncollectible $730,000
Not Yet Due 1.25% 354,000
1 to 30 days past due 2.00% 76,000
31 to 60 days past due 6.50% 48,000
61 to 90 days past due 32.75% 12,000
Over 90 days past due 67.00%
Required:
1. Using the aging of accounts receivable method, find the estimate the required balance of the Allowance for Doubtful Accounts at December 31, 2016.
2. Prepare the adjusting entry to record bad debts.