Question

You have just been hired as the accountant for Fan-Tastic Sports Gear Inc., a wholesaler of sporting goods and apparel. The previous accountant left abruptly, and an accounting intern has been drafting the journal entries since January.

You are examining the accounting records before finalizing the journal entries for the first quarter. Below are some accounts receivable transactions that you are reviewing

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JOURNAL

DATE DESCRIPTION POST. REF. DEBIT CREDIT

1 Jan. 17 Sales 9,800.00 2 Bad Debt Expense 9,800.00 3 18 Bad Debt Expense 9,800.00 4 Accounts Receivable-CJ’s Sports Corp. 9,800.00 5 21 Cash 10,600.00 6 Bad Debt Expense 2,300.00 7 Accounts Receivable-Four Seasons Sportswear Co. 12,900.00 8 Feb. 15 Accounts Receivable-Healthy Running Inc. 3,000.00 9 Bad Debt Expense 500.00 10 Sales 3,500.00 11 Mar. 4 Accounts Receivable-Four Seasons Sportswear Co. 2,300.00 12 Bad Debt Expense 2,300.00 13 4 Cash 2,300.00 14 Bad Debt Expense 2,300.00 15 13 Cash 5,540.00 16 Accounts Receivable-Barb’s Best Gear 5,540.00 17 31 Bad Debt Expense 20,770.00 18 Accounts Receivable-Healthy Running Inc. 5,150.00 19 Accounts Receivable-The Locker Room 4,100.00 20 Accounts Receivable-CJ’s Sports Corp. 2,780.00 21 Accounts Receivable-Get Your Gear Inc. 7,050.00 22 Accounts Receivable-Ready-2-Go 1,690.00 Assume that Fan-Tastic Sports Gear Inc. will be using the allowance method this year. Select any items(s) from the list below that should be added to the existing chart of accounts. Check all that apply. Balance of Aging Accounts Estimate for Uncollectible Accounts Allowance for Doubtful Accounts Net Realizable Value of Receivables Total Credit Sales 2. Finalize the journal entries shown on the Fan-Tastic Sports Gear Inc. panel and make any necessary changes. Refer to the Chart of Accounts for the exact wording of account titles. You may also use any items from the list above, if needed. PAGE 11 JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 X Final Questions Fan-Tastic Sports Gear Inc. recorded $3,100,000 of sales last year and projects sales to increase by $360,000 in the current year. Last year, 90% of sales were on account, with over 400 customer accounts. Bad debt expense was $26,187. 1. Assume that Fan-Tastic Sports Gear Inc. used the allowance method last year, and the allowance account at the end of the year had a debit balance of $2,240. The company estimated uncollectible accounts expense using the percent of credit sales method and expected 0.65% of credit sales to be uncollectible. What is the amount of the adjusting entry to provide for doubtful accounts on December 31? Round all calculations to the nearest dollar. 2. How much higher (lower) would Fan-Tastic Sports Gear Inc.’s net income have been under the allowance method assumption in (1) above than under the direct write-off method? (Enter “0” if there is no change.) by 3. Using the allowance method, the net realizable value of the receivables would appear on which financial statement? CHART OF ACCOUNTS Fan-Tastic Sports Gear Inc. General Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable-Healthy Running Inc. 122 Accounts Receivable-The Locker Room 123 Accounts Receivable-CJ’s Sports Corp. 124 Accounts Receivable-Get Your Gear Inc. 125 Accounts Receivable-Four Seasons Sportswear Co. 126 Accounts Receivable-Ready-2-Go 127 Accounts Receivable-Barb’s Best Gear 131 Interest Receivable 132 Notes Receivable 141 Merchandise Inventory 145 Office Supplies 151 Prepaid Insurance 181 Land 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 311 Common Stock 340 Retained Earnings 351 Dividends 390 Income Summary