Assume that all of Thurmond Company’s sales are credit sales. It has been the practice of Thurmond Company to provide for uncoll
ectible accounts expense at the rate of one-half of one percent of net credit sales. For the year 20X1 the company had net credit sales of $2,021,000 and the Allowance for Doubtful Accounts account had a credit balance, before adjustments, of $630 as of December 31, 20X1. During 20X2, the following selected transactions occurred:
Jan. 20 The account of H. Scott, a deceased customer who owed $325, was determined to be uncollectible and was therefore written off.
Mar. 16 Informed that A. Nettles, a customer, had been declared bankrupt. His
account for $898 was written off.
Apr. 23 The $906 account of J. Kenney & Sons was written off as uncollectible.
Aug. 3 Wrote off as uncollectible the $750 account of Clarke Company.
Oct. 20 Wrote off as uncollectible the $1,130 account of G. Michael Associates.
Oct. 27 Received a check for $325 from the estate of H. Scott. This amount had been
written off on January 20 of the current year.
Dec. 20 Cater Company paid $7,000 of the $7,500 it owed Thurmond Company.
Since Cater Company was going out of business, the $500 balance it still
owed was deemed uncollectible and written off.
REQUIRED: Prepare journal entries for the December 31, 20X1, and the seven
20X2 transactions on the work sheets provided at the back of this unit. Then
answer questions 8 and 9 on the answer sheet. T-accounts are also provided for
your use in answering these questions.
8. Which one of the following entries should have been made on December 31, 20X1?
Jan. 20 The account of H. Scott, a deceased customer who owed $325, was determined to be uncollectible and was therefore written off.
Mar. 16 Informed that A. Nettles, a customer, had been declared bankrupt. His
account for $898 was written off.
Apr. 23 The $906 account of J. Kenney & Sons was written off as uncollectible.
Aug. 3 Wrote off as uncollectible the $750 account of Clarke Company.
Oct. 20 Wrote off as uncollectible the $1,130 account of G. Michael Associates.
Oct. 27 Received a check for $325 from the estate of H. Scott. This amount had been
written off on January 20 of the current year.
Dec. 20 Cater Company paid $7,000 of the $7,500 it owed Thurmond Company.
Since Cater Company was going out of business, the $500 balance it still
owed was deemed uncollectible and written off.
REQUIRED: Prepare journal entries for the December 31, 20X1, and the seven
20X2 transactions on the work sheets provided at the back of this unit. Then
answer questions 8 and 9 on the answer sheet. T-accounts are also provided for
your use in answering these questions.
8. Which one of the following entries should have been made on December 31, 20X1?
1 answer:
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Answer:
Favorable for price and unfavorable for usage.
Explanation:
Provided Information,
Standard Material = 2.2 pounds per unit
Standard cost = $2 per pound
Actual Quantity = 2.3 pounds per unit
Actual cost = $1.95 per pound
In Material Price variance we have = (Standard Price - Actual Price) Actual Quantity
Since Standard Price $2 is more than actual price = $1.95 the variance is favorable.
In material quantity variance we have = (Standard Quantity - Actual Quantity) Standard Rate
Since actual quantity used = 2.3 pounds is more than standard 2.2 pounds the variance will be unfavorable
Therefore, Price Variance = Favorable, and Quantity Variance = Unfavorable.