Question 1 - Austin Incorporated has credit sales of $1,200,000 during 2012 and estimates at the end of 2012 that 1% of these credit sales will default (Austin uses the percentage-of-sales approach). During 2012 a customer defaulted on a $6,000 balance related to goods purchased during 2011. Austin's accounts receivable and allowance for bad debts balances at the end of the year were $50,000 debit and $7,000 credit, respectively (note - the $7,000 credit balance in the Allowance for Bad Debts account is the balance just before the adjusting entry to record 2012 bad debts expense - assume that the $6,000 write-off has already been posted to the Allowance for Bad Debts account).
Prepare journal entries to record:
A) Write off the defaulted $6,000 balance.
B) Adjusting entry to record the bad debt expense for 2012.
C) What is the net accounts receivable balance at the end of the year after the adjustments have been made?
Question 2 - On June 3, 2012, Irvine Corporation sells $45,000 of merchandise to a customer on account with terms of 2/10, n/30.
Prepare the journal entries to:
A) Record the sale using the gross method.
B) Assume the payment is received on June 10, 2012.
C) Assume payment is not received until June 21, 2012