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Dmitry_Shevchenko [17]
2 years ago
8

On December 31, Jarden Co.'s Allowance for Doubtful Accounts has an unadjusted credit balance of $16,500. Jarden prepares a sche

dule of its December 31 accounts receivable by age.
Accounts Receivable Age of Accounts Receivable Expected Percent Uncollectible
$880,000 Not yet due 1.30%
352,000 1 to 30 days past due 2.05
70,400 31 to 60 days past due 6.55
35,200 61 to 90 days past due 33.00
14,080 Over 90 days past due 69.00

Required:
a. Compute the required balance of the Allowance for Douitful Accounts at December 31 using an aging of accounts receivable.
b. Prepare the adjusting entry to record bad debts expense at December 31.
Business
1 answer:
Anton [14]2 years ago
6 0

Answer:

Jarden Co.

a. The required balance of the Allowance for Doubtful Accounts at December 31, using an aging of accounts receivable is:

= $44,598.

b. Adjusting Journal Entry:

Debit Bad Debts Expense $28,098

Credit Allowance for Doubtful Accounts $28,098

To record the bad debts expense and bring the Allowance for Doubtful Accounts to a credit balance of $44,598.

Explanation:

a) Data and Calculations:

Allowance for Doubtful Accounts, credit balance = $16,500

Accounts       Age of Accounts          Expected       Uncollectible

Receivable         Receivable            Uncollectible      Allowance

                                                             Percent  

$880,000          Not yet due                   1.30%    $11,440 ($880,000*1.30%)

 352,000          1 to 30 days past due   2.05         7,216 ($352,000*2.05%)

   70,400          31 to 60 days past due 6.55         4,611 ($70,400*6.55%)

  35,200           61 to 90 days past due 33.00      11,616 ($35,200*33.00%)

  14,080           Over 90 days past due 69.00       9,715 ($14,080*69%)

$1,351,680                                                          $44,598

Adjustment:

Ending balance         $44,598

Beginning balance    $16,500

Bad Debts Expense $28,098

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Answer:

A. 8.15

Explanation:

WACC is the firm's weighted average cost for the capital that is employed from different sources which includes common equity, preferred equity and debt.

In order to calculate WACC, the weighted average cost of each capital is added, so the formula becomes:

WACC = (E x %E) + (D x (1 - Tax) x %D) + (PE x %PE)

E = Common equity

D = Debt

PE = Preferred equity

%E = Common equity / total capital

%D = Debt / total capital

%PE = Preferred equity / total capital

Tax = Tax rate

<em>Interest on debt is a tax deductible expense therefore the interest rate is taken after accounting for tax in order to calculate WACC.</em>

<u>Calculation:</u>

Using the above formula we can calculate WACC

WACC = (11.25% x 55%) + (6.5% x (1-40%) x 35%) + (6% x 10%)

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3 years ago
The Stanton Stationery Shoppe wants to acquire The Carlysle Card Gallery for $450,000. Stanton expects the merger to provide inc
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Question:

The Stanton Stationery Shoppe wants to acquire The Carlysle Card Gallery for $450,000. Stanton expects the merger to provide incremental earnings of about $70,000 a year for 10 years. Carol Stanton has calculated the marginal cost of capital for this investment to be 8%. Conduct a capital budgeting analysis to determine whether she should purchase The Carlysle Card Gallery.

Answer:

Capital Budgeting Analysis is a process of evaluating how we invest in capital assets; i.e. assets that provide cash flow benefits for more than one year.

An organization has to take many decisions regarding the expansion of business and investment. To do that, they will require the help of NPV method and base its decision on the same.

Net present value is used in Capital budgeting to analyze the profitability of a project or investment. It is calculated by taking the difference between the present value of cash inflows and present value of cash outflows over a period of time.

As the name suggests, net present value is nothing but net off of the present value of cash inflows and outflows by discounting the flows at a specified rate.

From the question the following are given:

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Step 1:                                  

It's formula is given as:

Formula for NPV

NPV = (Cash flows)/( 1+r)i

<em>Where</em>

i- Initial Investment

Cash flows= Cash flows in the time period

r  = Discount rate

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Computing with a spreadsheet, the Net Present Value of the Investment is given at $ 19,706.

Kindly see attached spreadsheet.

Judgement: Since the NPV is positive the investment is profitable and hence Nice Ltd can go ahead with the expansion.

Cheers!

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