Reference no: EM132752249
Question - Outback Products Limited (OPL) uses the aging method for its account receivables. On January 1, 2020, the credit balance in the allowance for doubtful accounts was $20,000. For the year ended December 31, 2020, OPL made $1,942,000 of credit sales, wrote off $75,000 of accounts as uncollectible, recovered $8,000 on an account previously written off, and $430,000 remained outstanding at year end.
On January 1, 2020, OPL also received a $150,000, 7% promissory note from a customer in exchange for a large purchase of goods from OPL. The note matures on December 31, 2022. The market rate of interest for this type of note is 10%. OPL uses the net method.
The following table is the aging schedule for OPL's receivables:
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Days outstanding
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0 - 30 days
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31 - 60 days
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61 - 90 days
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Balance outstanding
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$320,000
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$80,000
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$30,000
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% not collectible
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1%
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2%
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4%
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Required -
(a) Calculate OPL's bad debts expense for 2020 and record the corresponding journal entry.
(b) Calculate the selling price of the promissory note on January 1, 2020.
(c) Form the necessary journal entry for the note on December 31, 2021. You might want to prepare a partial amortization schedule in order to answer part (c).
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