bad debt expense

X company made $2,790,000 in credit sales during the year, and has an accounts
receivable ending balance of $611,000. Management estimates that 5% of
outstanding accounts receivable at the end of the year will be uncollectible. The
Allowance for Doubtful Accounts has an ending credit balance of $5500, and last year
the company wrote off $1000. What entry will X company make to record bad debt
expense for the current year?
 Bad Debt Expense 25,050
 Allowance for Doubtful Accounts 25,050
 Ans: ($611,000 × 0.05) - $5,500 = $25,050. (Credit sales x Estimated
uncollectible %) – Credit Balance if Allowance for Doubtful Accounts = Adjusted
amount)
AR turnover ratio
15. The financial statements of Y Company report net sales of $837,400, and accounts
receivable of $150,000 at the beginning of the year and $101,840 at the end of
the year. Cost of Goods Sold was $900,000. What is the accounts receivable
turnover for Y Company?
Ans: $837,400 ÷ [($150,000 + $101,840) ÷ 2] = 6.65. [Net sales ÷ ((Beginning
accounts Receivable + Ending accounts Receivable) ÷ 2) = Accounts receivable
turnover]
Inventory
In 2020 Z Company had beginning inventory consisting of 220 units with a unit cost of
$7.20. During the year the company purchased inventory as follows:

720 units at $7.20

660 units at $8.00


The company sold 1130 units during the year for $12 per unit. Z Company uses the
weighted average cost method to determine the Cost of Goods Sold. What is the
average cost per unit to be used in the weighted average cost method?
 Ans: [(220 × $7.20) + (720 × $7.20) + (660 × $8.00)] ÷ 1600 = $7.530. (Total cost of
goods available for sale ÷ Total number of units available for sale = Average cost
per unit)
leases
 a company enters into a lease agreement for office space. The lease term is 5 years, the annual
lease payments are $10,000 payable at the end of each year, and the company's incremental
borrowing rate is 5%.
 What is the initial journal entry to record the lease contract?
 ANS: The PV of the lease liability is $43,295. [=PV(.05,5,10000,0,0)]
dr. Right-of-Use Asset 43,295
cr. Lease Liability 43,295.
 What is the journal entry at the end of the first year?
 Ans: Calculate Depreciation Expense = Initial Right-of-Use Asset / Lease Term
 = 42295/5 = $8,659. Interest Expense = Lease Liability at the Beginning of the Year *
Incremental Borrowing Rate = .05*43295 = $2,165. Reduction in Lease Liability = Lease
Payment - Interest Expense = 10000-2165 = 7,835.
Dr. Depreciation Expense: $8,659
Cr. Accumulated Depreciation on Right-of-Use Asset: $8,659
Dr. Interest Expense: $2,165
Cr. Lease Liability: $2,165
Dr Lease Liability: $7,835
Cr Cash: $10,000
investments in financial assets <
10%
 J company has 100 shares outstanding, a book value
of $1000, and a market value of $20 per share.
 1) give the initial journal entry if K company acquires 10
shares of J company for $200. 2) give the subsequent entry
at the end of the year if J company’s market value is $22
per share, assuming K company uses FVPL accounting
treatment.
dr. J asset 200
cr. cash 200
dr. J asset 20
cr. investment revenue 20
investments in financial assets 20%-49%
 J company has 100 shares outstanding, a book value
of $1000, and a market value of $20 per share.
 1) give the initial journal entry if K company acquires 30
shares of J company for $600. 2) give the subsequent entry
at the end of the year if J company’s market value is $22
per share, its net income is $5, and K company has
‘significant influence’ over J company.
Ans: dr. J asset 600
cr. cash 600
dr. J asset 1.5
cr. equity method investment revenue 1.5
investments in financial assets > 50%
 J company has 100 shares outstanding, a book value of $1000,
and a market value of $20 per share.
 1) give the initial journal entry if K company acquires 80 shares of J
company for $1600. The FV of all identifiable assets is $1400. 2) give
the subsequent entry at the end of the year if J company’s market value
is $22 per share, its net income is $5, and K company has ‘control’ over
J company.
dr. J asset 1400
dr. goodwill 400
cr. non-controlling interest 200
cr. cash 1600
dr. J asset 5
cr. equity method investment revenue 4
cr. non-controlling interest 1
Inventory turnover the Navigator
 Compute the average days it takes to sell inventory for the
Navigator using the financial statements on the two pages.

 average inventory =242,639,938

 inventory turnover = 968,849,205 CGS/average inventory =
3.99
 days in inventory = 365*(1/3.99) = 91 days
navigator income statement
navigator balance sheet (partial)