Fontanaco uses the Allowance Method for recognizing bad debt expense. At the end
ID: 2491976 • Letter: F
Question
Fontanaco uses the Allowance Method for recognizing bad debt expense. At the end of its' fiscal year (12-31-16) there was a $ 150,000 credit balance in the Allowance For Bad Debts account. Fontanaco's credit department has prepared an aged accounts receivable and has estimated the $ 750, 000 of its current accounts receivable will be uncollectable. In addition, it is estimated that 1% of Fontanaco's credit sales of $ 90,000,000 will be uncollectable. Make the required adjusting entry on 12/31/16 assuming: The balance sheet method. The income statement method. Kellyco wants to expand its production space. They need to acquire approximately $ 25, 000, 000. The company wants to issue a bond to obtain the funds needed. Their investment Banker has recommended the bonds should have an 8% stated interest rate and be issue for a 20 year term. Kellyco issued $ 25, 000, 000 worth of bonds on 1-1-16. paid annually and is amortized using the straight line method. Assume the bonds sell at 95, make the required entries on and 12/31/16 Assume the bonds sell at 163, make the required entries on 1/1/16 and 12/31/16Explanation / Answer
1.
a)
Debit Allowance for douubtful accounts $750000
Credit Acconts Receivable $750000
Debit Allowance for douubtful accounts $900000
Credit Acconts Receivable $900000
b)
Debit Allowance for douubtful accounts $750000
Credit Acconts Receivable $750000
Debit Bad Debts $900000
Credit Allowance for douubtful accounts $900000
2)
a) on 1/1/16
Debit Cash $23750000
Debit Discount on Bond Issue $1250000
Credit Bonds Payable $25,000,000
on 31/12/16
Debit Interest on Bonds Payables $2000000
Credit Discount on Bond Issue $62500
Credit Cash $1937500
b) Sell price at 163
on 1/1/16
Debit Cash $40750000
Credit Bonds Payable $25000000
credit Premium on Bonds Issue $15750000
on 31/12/16
Debit Interest on Bonds Payable $1212500
Debit Premium on Bonds Issue $787500
Credit Cash $2000000