Principles of financial accounting
Course:- Financial Accounting
Reference No.:- EM13372

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Question 1

Big Problem Ltd., an oil refining business uses an allowance system to account for bad debts. At the beginning of the year the allowance had a credit balance of $16,000. The following transactions took place during the year.

a) Total sales of $1,200,000 were recorded during the year; 90% of which were credit sales.

b) Accounts receivable collections totaled $900,000. The closing accounts receivable balance was $380,000

c) Accounts receivable totaling $48,500 were written off during the year.

d) Bonita Ltd., which owed $6,000, was one of the accounts that were written off in c) above. Bonita subsequently paid $4,000. This $4,000 is not included in the cash collections of $900,000.

e) Big Problem estimates that 8.00% of their ending accounts receivable will be uncollectible.

Required -
a) What is the opening accounts receivable balance?

b) Based on the ending accounts receivable balance and all of the above information still holding true, by what amount should the allowance account be adjusted?

c) Assume now that BP estimates that bad debt expense should be 4.2% of credit sales. If items a through d from above are still true, what would be the balance of the allowance account at year end?

Question 2

The following information for the month of December 20x6, with respect to cash activities, was gathered by Tressa Ltd.'s bookkeeper.

Cash balance per books, December 1 $ 3,700

Cash received during December 77,000

Cash payments made during December 77,548

Cash balance per bank statement, December 31 6,300

Cheques outstanding, December 31 5,300

Bank service charges for December 52

Deposits in transit at December 31 1,700

Cheque issued by Sparg Ltd. deducted from Tressa's account in error by the bank 580

A $1,200 cheque received from a customer on December 13 in payment of an account receivable was incorrectly recorded as 1,020

Required -

a. Prepare the December 20x6 bank reconciliation for Tressa.

b. Prepare any adjusting journal entries that would result from the December 20x6 bank reconciliation.

Question 3

The Webster Company uses the aging method to estimate the allowance for doubtful accounts. The following schedule of accounts receivable was prepared as at December 31, 20x6:

Age Balance %


0-30 days $674,000 0.5%

31-60 days 186,000 1.2%

61-90 days 65,400 10%

91-120 days 19,500 50%

Over 120 Days 7,800 75%


The balance in the allowance for doubtful accounts at the beginning of the year was $31,150 (cr). The following transactions were recorded during the year:

Accounts receivable written off 34,500

Recoveries of accounts receivable written off as uncollectible in prior periods


Required -

Calculate the bad debt expense for the year 20x6.

Question 4

On December 31, 20x1, the Juniper Company purchase a group of four assets for a total cost of $850,000. An independent appraiser assesses the fair value of each asset as follows:

Asset Fair Value

Land $100,000

Building 600,000

Equipment 250,000

Fixtures 150,000

Prepare the journal entry to record the acquisition of the four assets.

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