I need to do adjusting journal entries and I need help with these problems. 1)Up
ID: 2793609 • Letter: I
Question
I need to do adjusting journal entries and I need help with these problems.
1)Upon reviewing the bank reconciliation, you realized that the general ledger had not been adjusted for $400 worth of NSF checks received for cash sales. The amounts of the individual checks were too small to make it worthwhile to turn them over to an attorney for collection.
2)During discussions with the marketing department, you discovered that they had recently rolled out a new campaign and made shipments to several major retailers under terms that they could take, display, and sell the products for three months. Any products that were not sold in the three-month “trial period” could be returned. Payment for the products sold (or that they wanted to keep on hand) would need to be paid for during the fourth month of the special promotion. The shipments were made on December 1. Sales were recorded in the amount of $300,000. The cost to manufacture the products was $180,000.
3)While examining the allowance for doubtful accounts, you noticed that the only activity was a beginning balance, and some specific accounts receivable write-offs. Considering the accounts receivable aging, and subsequent collections, you estimated that the most likely scenario was problem accounts of $90,000 (independent of other adjustments). The allowance for doubtful accounts per the preliminary financial statements had a CR balance of $10,000.
Explanation / Answer
Answer:
The following rectification / correct entries need to be passed;
1. The checks recived against cash sales have been returned, so we shall reverse the cash sales and credit the cash book ledger for reversal of payment received.
Dr. Cash Sales $ 400
Cr. Cash $ 400
(being NSF check returned)
Also, as per the Companies policy, if required it may write off the Cost of Goods Sold for these goods if it expects them to go bbad.
2. The goods are sold on return basis and they shouldnot be treated as sales unless the lapse of the scheme period. We shall account this transaction as Goods with Retailers at cost of manufacture. We reverse the sales entry and pass entry to show the goods held with retailer on return basis;
Dr. Sales $ 300,000
Cr. Accounts Receivable $ 300,000
Dr. Stock held with Retailers $ 180,000
Cr. Inventories A/c $ 180,000
3. We shall write off the additional 80,000 as bad debt over and above existing balance in allowance for doubtful accounts and then credit accounts receivabel by 90,000
Dr. Bad Debts $ 80,000
Cr. Allowance for Doubtful Accounts $ 80,000
Dr. Alowance for Doubtful Accounts $ 90,000
Cr. Accounts Receivable $ 90,000