Answer:
1. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated residual value of $4,700 and two-year service life.
Equipment cost = 18,500 - 4,700 (residual value) = 13,800 / 24 months = $575 per month
January 31, depreciation expense
Dr Depreciation expense 575
Cr Accumulated depreciation - equipment 575
2. The company estimates the future uncollectible accounts. The company determines $18,000 of accounts receivable on January 31 are past due, and 30% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 5% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
total accounts receivable Jan. 31 = 47,600 (beginning) + 142,000 - 126,100 - 5,500 + 135,000 = 193,000
overdue balance = 18,000
current accounts balance = 193,000 - 18,000 = 175,000
total bad debt = ($18,000 x 30%) + ($175,000 x 5%) = $5,400 + $8,750 = $14,150
January 31, bad debt expense
Dr Bad debt expense 14,150
Cr Allowance for doubtful accounts 14,150
3. Accrued interest expense on notes payable for January.
4. Accrued income taxes at the end of January are $13,700.
notes payable $57,000 x 6% x 1/12 = $285
January 31, interest expense
Dr Interest expense 285
Cr Interest payable 285
5. By the end of January, $3,700 of the gift cards sold on January 2 have been redeemed.
January 31, accrued revenue
Dr Unearned revenue 3,700
Cr Sales revenue 3,700
