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lora16 [44]
3 years ago
10

The following information pertains to Lightning Inc., at the end of December: Credit Sales $ 20,000 Accounts Payable 10,000 Acco

unts Receivable 10,400 Allowance for Uncollectible Accounts 400 credit Cash Sales 20,000 Lightning uses the aging method and estimates it will not collect 7% of accounts receivable not yet due, 21% of receivables up to 30 days past due, and 46% of receivables greater than 30 days past due. The accounts receivable balance of $10,400 consists of $7,500 not yet due, $1,600 up to 30 days past due, and $1,300 greater than 30 days past due. What is the appropriate amount of Bad Debt Expense
Business
1 answer:
OLEGan [10]3 years ago
6 0

Answer:

Lightning Inc.

Computation of Bad Debts Expense:

7% of $7,500 =   $525

21% of $1,600 =    336

46% of $1,300 =   598

Total                 $1,459

Explanation:

a) Data and Calculations:

Credit Sales $ 20,000

Accounts Payable 10,000

Accounts Receivable 10,400

Allowance for Uncollectible Accounts 400 credit

Cash Sales 20,000

Lightning uses the aging method and estimates it will not collect 7% of accounts receivable not yet due, 21% of receivables up to 30 days past due, and 46% of receivables greater than 30 days past due.

The accounts receivable balance of $10,400 consists of $7,500 not yet due, $1,600 up to 30 days past due, and $1,300 greater than 30 days past due.

Age Analysis of Accounts Receivable balance of $10,400

                  Not yet due     up to 30 days         greater than 30

                                               past due              days past due

Percentage         7%                         21%                  46%

Balance           $7,500                  $1,600               $1,300

Bad debts          $525                     $336                 $598

Bad debts Expense = $1,459            

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A firm is considering a project with an annual cash flow of $300,000. The project would have a five year life, and the company u
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Answer:

Hence, the the maximum amount the company could invest in the project is $1081432.86  and yes, the project should be accepted as the value is greater than initial investment.

Therefore, the correct option is b. $1,081,434

Explanation:

Here, maximum amount means the sum of present value of all cash inflows

So,

Present value = all Year cash inflows × Discounted factor of each year

where,

Year 1, year 2, year 3, year 4, and year 5 have same cash flows i.e. $300,000

But the discounted factor is different in each year

The calculation of discounted factor = 1 ÷ (1+0.12) ^ 1

where,

0.12 = rate

^1 = for year 1, ^2 = for year 2 and so on.

The discounted rate for year 1, , year 2, year 3, year 4, and year 5 is 0.8929

, 0.7972

, 0.7118

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, 0.5674  respectively.

Now, multiply the cash flow amount with discounted rate for each year to get presented value of all years.

Year 1 = $300,000 × 0.8929 = $267,857.14

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Year 3 = $300,000 × 0.7118  = $213,534.07

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Year 5 = $300,000 × 0.5674  = $170,228.06

Then, sum all the presented values of all year to get maximum amount

= $267,857.14  +  $239,158.16  + $213,534.07  + $190,655.42  + $170,228.06

= $1,081,432.86

So, we attached the sheet for better understanding.

Hence, the the maximum amount the company could invest in the project is $1081432.86  and yes, the project should be accepted as the value is greater than initial investment.

Therefore, the correct option is b. $1,081,434

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