Answer: Please refer to Explanation
Explanation:
a)
The truck was bought for $56,000 and has a 5 year useful value after which it will have a salvage value of $6,000.
Depreciation can therefore be calculated as,
= ( Cost - Salvage) / Useful life
= (56,000 - 6,000) / 5
= $10,000
It will be depreciated at $10,000 per year.
Recording it will be,
DR Depreciation $10,000
CR Accumulated Depreciation (Truck) $10,000
(To record Depreciation expense to the year)
b) The Book Value is calculated as the Original Cost less the Accumulated Depreciation.
The Accumulated Depreciation so far being the first year is only $10,000.
The Book Value therefore is,
= 56,000 - 10,000
= $46,000
c) It is estimated that 5% of Credit Sales will be Uncollectible. This will go into the Uncollectible Account Balance. This is done to cater for the possibility that some people will not pay the money they owe so if they don't, it is simply taken from this account.
Sales are $320,000 and 5% are estimated Uncollectible.
This means that,
= 320,000 * 5%
= $16,000 will be recorded in the Uncollectible Account Balance
Recording it looks like,
DR Uncollectible Account Expense $16,000
CR Allowance for Doubtful Accounts $16,000
(To record Uncollectible Account Expense)
d) The Net Realizable Value of the Receivables will be Receivables less the Uncollectible Account Expense which will be removed to reflect the belief that some debtors will default.
Receivables are $68,000 and the Uncollectible Amount is $ 16,000.
Net Realizable Value = 68,000 - 16,000
Net Realizable Value = $52,000
