The following trial balance was prepared for Gifts, Etc. on Dec. 31, 2010, after the closing entries were posted.
Acct. Rec. 136,000
Allowance for doubtful accts. 10,000
accts. pay. 98,000
common stock 720,000
retained earnings 108,000
totals 936,000 936,000
Gifts etc. had the following transactions in 2011
1. purchased merchandise on accounts for 360,000
2. sold merchandise that cost 250,000 for 465,000 on account
3. sold for 240,000 cash merchandise that had cost 144,000
4. sold merchandise for 180,000 to credit card customers. The merchandise had cost 108,000. The credit card company charges a 3% fee.
5. collected 526,000 cash from accts. receivable.
6. paid 430,000 cash on acct. pay.
7. paid 134,000 cash for selling and administrative expenses
8. collected cash for the full amount due from the credit card company
9. issued a 48,000 face value, interest-bearing note with an 8% interest rate and a one-year term to maturity.
10. wrote off 7200 of accounts as uncollectible.
11. made the following adjusting entries:
a. recorded uncollectible accounts expense estimated at 1% of sales on account
b. recorded seven months of accrued interest on the note at Dec. 31, 2011.
a. organize the transaction data in accounts under an accounting equation.
b. prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for 2011.
Net income: 236,710
Total assets: 1,142,950
The solution for this problem is attached and it answer the requirements described ...
This solution carefully uses percent of revenue allowance method.