Modern Machine Shop (MMS) Inc. manufactures special moulds that are used in the production of plastic toys. Below is MMS€™s trade receivables ledger from October 1 to December 31, 2015:

Additional information is as follows:
a. MMS sold its special moulds at $ 500 each.
b. All sales were on credit with terms 2/ 10, n/ 30.
c. MMS€™s records included the following items and their balances as at September 30, 2015:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,000
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,500
Allowance for doubtful accounts (credit balance) . . . . . . . . . 1,300
Required:
1. Prepare the journal entries to record the transactions on October 8, November 5, November 16, and December 20.
2. MMS uses the aging of trade receivables method to determine the amount of receivables that may not be collectible in the future. Its estimated uncollectible rates are as follows:

Determine the amount of receivables that may not be collectible in the future, and prepare the journal entry to record bad debt expense on December 31, 2015. Show your calculations. (Hint: You may wish to keep track of trade receivables in order to determine the age of these receivables.)
3. MMS€™s cost of sales is $ 60,000 for 2015. Compute and evaluate MMS€™s gross profit percentage for 2015. MMS€™s gross profit percentages were 35 percent and 40 percent for 2013 and 2014, respectively.

Transcribed Image Text:

General Ledger Trade Receivables Date Oct. Balance Oct. 8 Wrote off uncollectible accounts. Oct. 15 Sold 10 moulds to Allen Inc. Oct. 31 Sold 15 moulds to Machinex Ltd. Nov.5 Received the amount due from Machinex for moulds Explanation Debit CreditBalance 9,500 1,500 8,000 13,000 20,500 75001300 5,000 7.500 purchased on October31. Nov.7 Sold 20 moulds to Centra Corp. 10,000 23.000 Nov.16 Allen Inc. returned two moulds and paid the amount due for 5,000 18,000 the remaining moulds purchased on October 15 Nov.25 Centra Corp. retumed two moulds purchased on November 7 Nov. 29 Centra Corp.made a partial payment on the moulds purchased 1.000 7.000 5,000 12,000 500 12,000 on November 7 Dec. 20Recovered $500 that was written off on October 8 500 Age of trade receivables Not yet due 1% 1-30 days past due 5% 31-60 days past due 10% Over 60 days past due 15% Estimated % uncollectible