ABC Inc. has three customers, X, Y, and Z During 2012 X purchased 10,000 units o
ID: 2459342 • Letter: A
Question
ABC Inc. has three customers, X, Y, and Z During 2012 X purchased 10,000 units of product at the standard list price of $400 per unit. Y purchased 15.000 units of product with a standard list price of $S00 per unit. 2 purchased 5000 units of product with a standard list price of $450 per unit. All sales are on account. The cost of product sold to X was $3,000,000, Y was $3,000,000 and 2 was $1,000,000. Y is a preferred customer and is offered a trade discount of 10%. ABC offers payment terms to X and Y of 3/10, N/30. Z is not offered any payment terms. ABC uses the net method to record sales to X and the gross method to record sales to group Y. 2000 units of the product sold to 2 had minor damage that did not affect the performance of the product. As such ABC offered and 2 accepted a 10% discount to avoid having to take back the product. One quarter of the 2012 sales to customer X were collected within the discount period. One half of the 2012 customer X sales were collected after the discount period but before December 31, 2012 One half of the 2012 sales to customer Y were collected within the discount period. Another quarter of the 2012 customer Y sales were collected after the discount period but before December 31. 2012. Historically 5% of ABC gross sales are returned. There are no indications this rate should be adjusted at year end. Both actual 2012 returns and estimated 2012 returns are divided between products and customers proportionally, based on the original gross value of sales to each customer. There were $300,000 of actual returns during the year. During 2012 ABC accrued an estimated bad debt expense equal to 2% of gross credit sales. At year end the allowance for uncollectible accounts is adjusted using the composite method. ABC actual accounts receivable write offs were $100,000 during 2012. On January 1, 2012 ABC accounts receivable balance was $2,000,000. None of this balance was subject to cash discounts and all of such balance was collected m 2012. The allowance for uncollectable accounts was $60,000 and the allowance for sales returns was $0 on January 1, 2012. Historically 3% of ABC all accounts receivable becomes uncollectable On June 1, 2012, ABC provided a loan to a supplier using a non-interest bearing note receivable requiring the supplier to repay ABC $500,000 on May 31. 2013. ABC used 12% as a discount rate on this note. On July 1, 2012 ABC assigned $650,000 of accounts receivable to its bank for an 8% loan of $500,000 with interest due on June 30, 2013. The bank charged a 2% fee for the assignment transaction. On December 31. 2012, $375,000 of the assigned accounts receivable were collected. Required: Develop journal entries necessary to record all of the transactions described above. In addition determine the 2012 bad debt expense and the December 31, 2012 accounts receivable, allowance for uncollectible accounts, and allowance for returns balances. Finally, determine the balance sheet presentation amount for the non interest bearing notes receivable and the accounts receivable assigned to the bank. Show all calculations and details for these balance sheet presentations.Explanation / Answer
ABC Inc. All Amounts in $ Journal Entries for Transactions X A/c DR 3880000 Discount A/c DR 120000 To Sales A/c 4000000 Y A/c DR 7500000 To Sales A/c 7500000 Z A/c DR 2250000 To Sales A/c 2250000 Cost of Sales A/c 7000000 To Sales A/c 7000000 Discount A/c DR 225000 To Z A/c 225000 Cash A/c 970000 To X A/c 970000 Cash A/c 1940000 To X A/c 1940000 Cash A/c 3637500 Discount A/c DR 112500 To Y A/c 3750000 Cash A/c 1875000 To Y A/c 1875000 Sales Returns A/c DR 987500 To Allowances for Returns - X A/c 287272.7 To Allowances for Returns - Y A/c 538636.4 To Allowances for Returns - Z A/c 161590.9 Bad Debts A/c DR 275000 To Provision for Bad Debts A/c 275000 Bad Debts Written Off A/c 100000 To Bad Debts A/c 100000 Cash A/c 2000000 To Accounts Receivable A/c 2000000 Bad Debts A/c DR 137500 To Provision for Bad Debts A/c 137500 Loan to Supplier A/c DR 500000 To Cash A/c 440000 To Discount on Loan A/c 60000 Receivables against Loan A/c DR 650000 To 8% Bank Loan A/c 500000 To Unsecured Loan A/c 150000 Bank Charges A/c DR 10000 To Cash A/c 10000 Interest on Loan A/c DR 20000 To Interest Accrued but not due on Loan A/c 20000 Cash A/c 375000 To Receivables against Loan A/c 375000 Balance of Bad Debt Expense in 2012 312500 Balance for Uncollectible Accounts 412500 Allowances for Return Balances 987500 Balance Sheet Presentations Loans and Advances Non-Interest bearing 8% note issued to supplier 500000 Less : Discount thereon 60000 440000 Bank Loans (Secured) Assigned against Accounts Receivable 500000 Unsecured, assigned against Accounts Receivable 150000 650000 Less : Recovery in 2012 375000 275000 Add : Interest Accrued but not due on loan 20000 295000