Receivable

E7-7 (Recording Bad Debts) Duncan Company reports the following financial information before
adjustments.
Dr. Cr.
Accounts Receivable $100,000
Allowance for Doubtful Accounts $ 2,000
Sales Revenue (all on credit ) 900,000
Sales Returns and Allowances 50,000
Instructions Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad
debts at (a) 1% of net sales and (b) 5% of accounts receivable.

a)
Net sales = (Sales Revenue – Sales Return and Allowance)
= (900,000-50,000)
= 850,000
Bad Debt Expense = Net sales * percentage of net sales
= 850,000*1%
= $8,500
JOURNAL ENTRY
DATE DETAILS REF DEBIT ($) CREDIT ($)
Bad Debt Expense 8500
Allowance for Bad Debt 8500

b)
5% of Account Receivable = (100,000*5%)
= 5,000
Bad Debt Expense = (percentage of A.R - Allowance of doubtful account)
= (5000 – 2000)
= $3,000

JOURNAL ENTRY
DATE DETAILS REF DEBIT ($) CREDIT
($)
Bad Debt Expense 3000
Allowance for Bad Debt 3000
Income Statement
Problem-1: Karatoa Company’s accounting records show the following at year-end:
Purchase Discounts Tk. 3,400; Freight-in Tk. 6,100; Sales Tk. 2,45,000; Purchases Tk. 1,64,500; Beginning
Inventory Tk. 18,000; Ending Inventory Tk. 20,000; Sales Discounts Tk. 15,000; Purchase Returns Tk. 7,200;
and Operating Expenses Tk. 57,000.
Instruction: Compute the following amounts for Karatoa Company:
a) Net sales b) Cost of goods purchased c) Cost of goods sold
d) Gross profit e) Net Income.

a)
Net Sales = Total sales - sales discount
= TK. (2,45,000 - 15,000)
= TK. 2,30,000

b)
Cost of goods purchased = Total purchase – purchase return - purchase discount + fright in
= TK. (1,64,500 - 7,200 -3,400 + 6,100)
= TK. 1,60,000

c)
Cost of goods sold = Beginning inventory + cost of goods purchased - Ending inventory
= TK. (18,000 + 1,60,000 - 20,000)
=TK. 1,58,000

d)
Gross profit = Net sales - cost of goods sold
=TK. (2,30,000 - 1,58,000)
=TK. 72,000

e)
Net Income = Gross profit - operating expenses
=TK. (72,000 - 57,000)
= TK. 15,000
Depreciation
The cost of equipment purchased by Walmart Corporation, on may-1, 2015 is Tk.50,000. It is estimated that the
machine will have a Tk.2000 salvage value at the end of its service life. Its service life is estimated at 6-years;
its total working hours are estimated at 38,000 and its total production is estimated at 4,50,000. During 2015 the
machine was operated 5,200 hours and produced 52,000 units. During 2016 the machine was operated 5,000
hours and produced 40,000 units
Required:
Compute depreciation expense on the machine for the year ending December-31, 2015 and the year ending
December-31, 2016, using the following methods:
(a) Straight line.
(b) Units-of-output.
(c) Working hours.
(d) Sum-of-the-years’ digits.
(e) Double declining balance.
a)
Given That,
Cost = Tk. 50,000
Salvage Value = Tk. 2,000
Estimated useful life = 6 years
We know,
𝑪𝒐𝒔𝒕−𝑺𝒂𝒍𝒗𝒂𝒈𝒆 𝑽𝒂𝒍𝒖𝒆
Straight line=
𝑬𝒔𝒕𝒊𝒎𝒆𝒕𝒆𝒅 𝒖𝒔𝒆𝒇𝒖𝒍𝒍 𝒍𝒊𝒇𝒆

50000−2000
For 2016, =
6
=8000
And,
8
For 2015, =8000*
12
= 5333.34

b)
Given,
Cost = Tk. 50,000
Salvage Value = Tk. 2,000
Number of units produced in 2015 = 52,000 units
Total number of units produced = 4,50,000 units

For 2015,
We know,
(𝑪𝒐𝒔𝒕−𝑺𝒂𝒍𝒗𝒂𝒈𝒆 𝑽𝒂𝒍𝒖𝒆)∗𝑵𝒐.𝒐𝒇 𝒖𝒏𝒊𝒕𝒔 𝒑𝒓𝒐𝒅𝒖𝒄𝒆𝒅 𝒊𝒏 𝟐𝟎𝟏𝟓
Units of output =
𝐓𝐨𝐭𝐚𝐥 𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐮𝐧𝐢𝐭𝐬 𝐩𝐫𝐨𝐝𝐮𝐜𝐞𝐝
(50,000 – 2,000)x 52,000
=
4,50,000
=5546.67
For 2016,
Given,
Cost = Tk. 50,000
Salvage Value = Tk. 2,000
Number of units produced in 2015 = 40,000 units
Total number of units produced = 4,50,000 units
We know,
(𝐂𝐨𝐬𝐭 – 𝐒𝐚𝐥𝐯𝐚𝐠𝐞 𝐕𝐚𝐥𝐮𝐞) 𝐱 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐮𝐧𝐢𝐭𝐬 𝐩𝐫𝐨𝐝𝐮𝐜𝐞𝐝 𝐢𝐧 𝟐𝟎𝟏𝟔
Units of output= 𝐓𝐨𝐭𝐚𝐥 𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐮𝐧𝐢𝐭𝐬 𝐩𝐫𝐨𝐝𝐮𝐜𝐞𝐝

(50,000 – 2,000)x 40,000

=
4,50,000
= Tk. 4,266.67

c)
Given,
Cost = Tk. 50,000
Salvage Value = Tk. 2,000
Working hours in 2015 = 5,200 hours
Total working hours= 38,000 hours

For 2015,
We know,
(𝐂𝐨𝐬𝐭 – 𝐒𝐚𝐥𝐯𝐚𝐠𝐞 𝐕𝐚𝐥𝐮𝐞)𝐱 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐡𝐨𝐮𝐫𝐬 𝐢𝐧 𝟐𝟎𝟏𝟓
Working Hours =
𝐓𝐨𝐭𝐚𝐥 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐡𝐨𝐮𝐫
(50,000 – 2,000)x 5,200
=
38,000
= Tk. 6,568.42

Given,
Cost = Tk. 50,000
Salvage Value = Tk. 2,000
Working hour in 2015 = 5,000 hours
Total working hour = 38,000 hours
For 2016,
We know,
(𝐂𝐨𝐬𝐭 – 𝐒𝐚𝐥𝐯𝐚𝐠𝐞 𝐕𝐚𝐥𝐮𝐞)𝐱 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐡𝐨𝐮𝐫𝐬 𝐢𝐧 𝟐𝟎𝟏𝟔
Working Hours =
𝐓𝐨𝐭𝐚𝐥 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐡𝐨𝐮𝐫

(50,000 – 2,000)x 5,000

=
38,000
= Tk. 6,315.79
d)
Given,
Estimated useful life = 6 years
We know
𝐍 𝐱 (𝐍 +𝟏)
Sum of the year digits =
𝟐
6 x (6 +1)
=
2
=21

For 2015
We know,
𝐍𝐮𝐦𝐞𝐫𝐚𝐭𝐨𝐫
Depreciation expense = (Cost - Salvage Value) x
𝐃𝐢𝐠𝐢𝐭𝐬
6
= (50,000 – 2,000) x
21
8
= 13714.28*
12

= Tk. 9142.85

For 2016
𝐧𝐮𝐦𝐞𝐫𝐚𝐭𝐨𝐫
Depreciation expense = (Cost - Salvage Value) x
𝐝𝐢𝐠𝐢𝐭𝐬
5
= (50,000 – 2,000) x
21
= Tk. 11,428.57

e)
We know,
𝟏𝟎𝟎%
Straight line rate =
𝒖𝒔𝒆𝒇𝒖𝒍 𝒍𝒊𝒇𝒆
𝟏𝟎𝟎%
=
𝟔 𝒚𝒆𝒂𝒓𝒔
= 16.67%
Double declining balance rate = (Straight line rate×2)
= (16.67%×2)
= 33.34%
We Know,
Depreciation expense under double declining Balance = (Book value at beginning period x
Double declining balance rate)

For 2015,
8
= (50,000 x 33.34%) x
12
= Tk. 11,113.34
For 2016,
= (50,000 - 11,113.34) x 33.34%
= Tk. 12,964.81

CASH FLOW

Problem: The comparative Balance sheet of Haque Corporation at the beginning and end of the year 2017 appear below:
Haque Corporation
Balance Sheet
Dec.31,2017 Jan.1,2017
Assets
Cash 20,000 13,000
Accounts Receivable 106,000 88,000
Equipment 39,000 22,000
Less: Accumulated Depreciation (17,000) (11,000)
Total 148,000 112,000
Liabilities and Owners’ Equity
Accounts payable 20,000 15,000
Common stock 100,000 80,000
Retained earnings 28,000 17,000
Total 148,000 112,000
Net income of Tk.44,000 was reported and dividends of Tk.33,000 were paid in 2017.
Required: Prepare a cash flows statement for the year 2017
 Haque Corporation
Cash Flow Statement
For the year ended December,31st 2017
Details TK TK
Operating activities:
Net income 44,000
Adjustments to reconcile net income to net cash provided by
operating activities

Depreciation Expense (17,000 – 11.000) 6000

(-) Increase account Receivable (1,06.000 – 88,000) (18000)

Increase account payable (20000 – 15000) 5000
cash flows by operating activities (7000)
37000
Investing Activities:
(-) Purchase of equipment (39000 – 22000)
cash flows by investing activities (17000)
Financing Activities:
Common stock issued (100000 – 80000) 20000
(-) Dividends paid (33000)
Cash flows by financing activities (13000)
Net increased in cash 7000
Cash at beginning of period 13000
20000
Cash at end of period