Clara's Consulting Has a Perpetual Inventory System and Uses the Allowance

question 46

Essay

Clara's Consulting has a perpetual inventory system and uses the allowance method to account for its receivables. It has completed the following selected transactions:
2018 $\text {Nov. \quad1 Sold\quad \(\$ 8,900\) of inventory to a client for \(\$ 12,400,2 / 10 , \mathrm { n } / 30\).}$
$\text {\quad\quad\quad 7\quad Borrowed \(\$ 300,000\) cash from Independent Bank, receiving a 5 percent 175 day note.}$
$\text\quad\quad\quad {9\quad Received payment from the Nov. 1 sale.}$
$\text {\quad\quad\quad22 \quad Wrote off a client's account, \(\$ 2,700\).}$
$\text {Dec.\quad 5 \quad Recorded VISA credit card sale of \(\$ 30,000\). VISA charges a 4 percent fee. The cost of sales is \(\$ 22,800\).}$
$\text {\quad\quad\quad31 \quad Made an adjusting entry to accrue interest on the Independent Bank note.}$
$\quad\quad\quad\text {31\quad The accounts receivable balance at the end of December is \(\$ 432,000\) and the company estimates that \(1 \%\) will be uncollectible. Prior to this adjustment, the debit balance in Allowance for Doubtful Accounts is \(\$ 1,250\).}$
$\text {2019}$
$\text {May \quad1 \quad Paid the maturity value of the Independent \(B\) ank note.}$
$\quad\quad\quad\text {15 \quad Sold \(\$ 3,000\) of inventory to a customer for \(\$ 5,600\). The customer paid with her debit card. The bank charges \(\$ 1\) per debit card transaction.}$
$\text {Jun. \quad23 \quad Sold inventory to Arnold Company, receiving a 30-day, 6 percent note for \(\$ 18,000\). The cost of the inventory was \(10,700\).}$
$\text {Jul.\quad 23 \quad Arnold Company failed to pay its note at maturity; converted the maturity value of the note to an account receiv able.}$
$\text {Nov. \quad16 \quad Paid salaries of \(\$ 10,800\)}$
$\text {Dec.\quad 5 \quad Collected in full from Arnold Company.}$
$\quad\quad\quad\text {31 \quad Sales recorded in 2017 amounted to \(\$ 459,000\) and the company estimates that \(1 \%\) will be uncollectible.}$ Record the transactions in the general journal. Explanations are not required.

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Definitions:

Annual Percentage Rate

The annual rate charged for borrowing or earned through an investment, which represents the actual yearly cost over the term of a loan.

Periodic Compounding

Periodic compounding involves the process of calculating interest on both the initial principal and the accumulated interest from previous periods on a deposit or loan.

Mortgage Loan

A loan secured by real estate. Commonly referred to simply as a mortgage.

Compounded Monthly

The process of adding interest earned back to the principal sum of a deposit or loan, with this process happening every month.