Question: The following trial balance was prepared for Gifts Etc Inc

The following trial balance was prepared for Gifts, Etc., Inc., on December 31, 2013, after the closing entries were posted:

Gifts, Etc. had the following transactions in 2014:
1. Purchased merchandise on account for $405,000.
2. Sold merchandise that cost $310,000 for $490,000 on account.
3. Sold for $250,000 cash merchandise that had cost $156,000.
4. Sold merchandise for $190,000 to credit card customers. The merchandise had cost $112,000. The credit card company charges a 4 percent fee.
5. Collected $520,000 cash from accounts receivable.
6. Paid $495,000 cash on accounts payable.
7. Paid $145,000 cash for selling and administrative expenses.
8. Collected cash for the full amount due from the credit card company (see item 4).
9. Loaned $60,000 to L. Jones. The note had an 8 percent interest rate and a one-year term to maturity.
10. Wrote off $8,200 of accounts as uncollectible.
11. Made the following adjusting entries:
(a) Recorded uncollectible accounts expense estimated at 1 percent of sales on account.
(b) Recorded seven months of accrued interest on the note at December 31, 2014 (see item 9).

a. Prepare general journal entries for these transactions; post the entries to T-accounts; and prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows for 2014.
b. Compute the net realizable value of accounts receivable at December 31, 2014.
c. If Candles, Etc. used the direct write-off method, what amount of uncollectible accounts expense would it report on the income statement?

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  • CreatedOctober 26, 2013
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