Question

Momo Industries began operations on January 1, 2013. During the next two years, the company completed a number of transactions involving credit sales, accounts receivable collections, and bad debts. Momo uses a perpetual inventory system, and the gross margin is 40% of the sales. These transactions are summarized as follows:
2013
a. Sold merchandise on credit for $1,500,000, terms n/30.
b. Wrote off uncollectible accounts receivable in the amount of $20,000.
c. Received cash of $720,000 in payment of outstanding accounts receivable.
d. December 31, Momo estimated that 3.5% of the outstanding accounts receivable would become uncollectible.
2014
e. Sold merchandise on credit for $1,750,000 terms n/30.
f. Wrote off uncollectible accounts receivable in the amount of $28,000.
g. Received cash of $1,250,000 in payment of outstanding accounts receivable.
h. Momo uses the same method as in 2013 to estimate and record the uncollectible accounts receivable.
Requirements
1. Prepare the journal entries to record the transactions that occurred in 2013 and 2014, and the adjusting entries to record bad debt expense at the end of each year.
2. Is the estimated amount for the bad debt expense sufficient?


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  • CreatedJuly 08, 2015
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