Problem 1: Information related to Dekalb Company for 2006 is summarized below.
Total Credit Sales $1,640,000
Accounts Receivable at Dec. 31 620,000
Bad debts written off 26,000
Instructions:
Q1. What amount of bad debts expense will Dekalb Company report if t uses the direct write-off method?
Q2. Assume that DeKalb Company decides to estimate its bad debts expense to be 2% of credit sales. What amount of bad debts expense will DeKalb record if Allowance for Doubtful Accounts has a credit balance of $3,000
Q3. Assume that DeKalb Company decides to estimate its bad expense based on 5% of Accounts receivable. What amount of bad debts expense will DeKalb Company record if Allowance for Doubtful Accounts has a credit balance of $4,000
Q4. Assume the same facts as in (c), except that there is a $2,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will DeKalb record?
Q5. What is the weakness of the direct write-off method of reporting bad debts expense?
Problem 2: Prepare installment payments schedule and journal entries for a mortgage note payable.
Otto Electronics issues an $800,000, 8%, 10-year mortgage note on December 31, 2006, to help finance a plant expansion program. The terms provide for semiannual installment payments, not including real estate taxes and insurance of $58,865. Payments are due June 30 and December 31.
Instructions:
Q1. Prepare an installment payment schedule for the first 2 years.
Q2. Prepare the entries for (1) the mortgage loan and (2) the first two installment payments. (June 30 Mortgage Notes Payable $26, 865)
Q3. Show how the total mortgage liability should be reported on the balance sheet at December 31, 2007. (Current Liability – 2007: $59, 276)