Reference no: EM132469980

Question 1 - Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2018, accounts receivable totaled $670,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $41,000 at the beginning of 2018 and $25,500 in receivables were written off during the year as uncollectible. Also, $2,100 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 15% to accounts receivable at the end of the year.

Required -

1. Prepare journal entries to record the write-off of receivables, the collection of $2,100 for previously written off receivables, and the year-end adjusting entry for bad debt expense.

2. How would accounts receivable be shown in the 2018 year-end balance sheet?

Question 2 - On June 30, 2018, the Esquire Company sold some merchandise to a customer for $56,000. In payment, Esquire agreed to accept a 8% note requiring the payment of interest and principal on March 31, 2019. The 8% rate is appropriate in this situation.

Required -

1. Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold), the December 31, 2018 interest accrual, and the March 31, 2019 collection.

2. If the December 31 adjusting entry for the interest accrual is not prepared, by how much will income before income taxes be over-or understated in 2018 and 2019?