At December 31, 2012, Pinebrook Inc

question 116

Essay

At December 31, 2012, Pinebrook Inc. reported $135,000 in accounts receivable and $9,300 in the allowance for doubtful accounts. In 2013, the company had $875,000 in credit sales and collected $915,000 on accounts receivable. Pinebrook also wrote off $2,500 in uncollectible accounts. The company uses the aging method to estimate bad debts, and management has estimated that the allowance for doubtful accounts for December 31, 2013 should be $8,800.
Required:
a. Provide the journal entry to record bad debts expense for the year 2013. (Ignore information contained in part (b)below.)
b. While auditing the books of Pinebrook, you discover that the company's bookkeeper has erroneously recorded a transaction: for one customer who went bankrupt in 2013, she wrote off the $6,800 receivable with a debit to bad debts expense. Determine the error's effects (overstated/understated)on the December 31, 2013 balance sheet (accounts receivable, allowance for doubtful accounts)and the income statement for the year 2013.
c. In January 2014, the company factored all of its receivables ($95,000)without recourse for proceeds of $77,000. Present the journal entry to record this transaction.

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Definitions:

Conversion Costs

The costs associated with converting raw materials into finished goods, including direct labor and manufacturing overhead.

Work in Process Inventory

Items in production that are not yet completed, representing a portion of inventory that is between raw materials and finished goods.

Equivalent Unit

A measure used in cost accounting to express the amount of work done on a product in terms of fully finished units.

Process Costing

A costing method used where similar goods are mass-produced, and it involves accumulating production costs and assigning them to products.