Step-by-step explanation:
On July 31, Electronics Direct sold a 65 inch interactive LED television to a customer for $4,550. The television had a cost basis of $2,275. The customer is required to make a $500 down payment and to pay the $4,050 balance in equal $90 payments over the next 45 months on the last day of each month.
Under the installment method of revenue recognition, how much gross profit will the company recognize during the current year?
Revenue = Down payment ($500) + Monthly payments (5 x $90) =$950
Cost of goods sold = $950 / $4,550 × $2,275 = $475
Gross profit = $950 - $475 = $475
Dempster Company performs an aging analysis to determine the amount of its bad debts expense to record at the end of each year. At the end of the current year, Dempster's aging schedule appeared as follows:
Current Receivables:
24,000 at 1 %
Past Due Receivables
1-30 Days: 5300 at 2%
31-60 Days: 8100 at 6%
61-90 Days: 1960 at 25%
91+ Days: 1260 at 40%
The balance in Dempster's Allowance for Doubtful Accounts was $520 negative (i.e., the bad debt expense in the prior period had been under estimated).
What is the amount of Dempster's bad debt expense for the year?
($24,000 x 0.01) + ($5,300 x 0.02) + ($8,100 x 0.06) + ($1,960 x 0.25) + ($1,260 x 0.40)
= $1,826 estimated uncollectible accounts.
$1,826 - $(520) = $2,346 bad debt expense for the year.
