The Schedule That Follows Shows Trial Balances for Twain Company

question 28

Essay

The schedule that follows shows trial balances for Twain Company at the end of Year 1 and Year 2.Note that the two trial balances shown for Year 1 are the Adjusted, Preclosing Trial Balance (after making all adjusting entries) and the final Post-Closing Trial Balance, from which the firm constructs the balance sheet.The trial balance shown for the end of Year 2 is taken before adjusting entries of any kind, although the firm has periodically written off specific customers' Accounts Receivable during the year as those customers' accounts become obviously uncollectible.
Twain Company closes its books annually and makes all of its sales on account.At the end of Year 2, the management of Twain Company, along with the independent auditor, analyzes the currently outstanding Accounts Receivable.The aging schedule classifies accounts as "not yet due," "overdue less than 30 days," "overdue 30 days or more." Twain Company estimates that one-half of one percent of current accounts will become uncollectible, 5 percent of accounts overdue less than 30 days will become uncollectible, and 40 percent of accounts overdue 30 days or more will become uncollectible.From this aging of accounts receivable, the firm estimated that it will not collect $30,000 of the accounts.The auditor will use this information in making adjusting entries for Year 2.
Required:
See the requirements below.If there is insufficient information for a given question, state just that.
a. What was the dollar amount of Accounts Receivable written off during Year 2 as obviously uncollectible?
b. What was the total amount of cash collected from customers during Year 2?
c. What is the dollar amount of net Accounts Receivable shown on the balance sheet at the end of Year 1?
d. What is the dollar amount of the Bad Debt Expense for Year 2?
e. What is the dollar amount of the net Accounts Receivable shown on the balance sheet for the end of Year 2?
Twain Company
Trial Balances
$\begin{array}{|l|l|l|l|l|l|l|}\hline&\text { End of Year 1 }& \text { End of Year } 2\\\hline& \text { Adjusted } & \text { Post-Closing } & \text { Unadjusted } \\&\text { Preclosing } & & \text { Trial Balance } \\\hline & \text { Dr. } & \text { Cr. } & \text { Dr. } & C r . & \text { Dr. } & C r . \\\hline \text { Accts Receivable } & \$ 300,000 & & \$ 300,000 & & \$ 360,000 & \\\hline \text { Allow. for Uncollect. Accts } & & \$ 18,000 & & \$ 18,000 & 84,000 & \\\hline \text { Sales } & & 4,800,000 & & & &\$6,000,000 \\\hline \text { Bad Debt Exp. } & 100,800 & & & & & \\\hline \text { All other accts } & 5,599,200 & 1,182,000 & 960,000 & 1,242,000 & 6,156,000 & 600,000 \\\hline \text { Totals } & \$ 6,000,000 & \$ 6,000,000 & \$ 1,260,000 & \$ 1,260,000 & \$ 6,600,000 & \$ 6,600,000 \\\hline\end{array}$

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Definitions:

Profit-Maximizing

A strategy where a business aims to achieve the highest possible profit from its operations.

Loss-Minimizing

A strategy or approach that aims to reduce or minimize losses in various contexts, including business, investment, and economic activities.

Short-Run Equilibrium

A state in which the quantity supplied equals the quantity demanded within a market, but only for a temporary period due to fixed inputs in production.

Long-Run Equilibrium

A state in which all firms in a market or industry are making normal profits, with no incentives for entry or exit, and all factors of production are perfectly mobile.