1) BAD DEBT
Chatter Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Chatters Accounts Receivable account was $389,000 and the Allowance for Doubtful Accounts had a debit balance of $5,000. The year-end balance reported in the balance sheet for the Allowance for Doubtful Accounts will be based on the aging schedule shown below:
|Days Account Outstanding||Amount||Probability of Collection|
|Less than 16 days||$293,000||.97|
|Between 16 and 30 days||$102,000||.89|
|Between 31 and 45 days||$ 70,000||.83|
|Between 46 and 60 days||$ 55,000||.76|
|Between 61 and 75 days||$ 28,000||.60|
|Over 75 days||$ 8,000||.30|
Redster Company is a manufacturing firm. Presented below is information concerning one of its products, Ander:
Compute the cost of goods sold under the following situations:
Taylor Lewis Company has provided information on intangible assets as follows.
A patent was purchased from Craig Company for $4,000,000 on June 1, 2010. Lewis estimated the remaining useful life of the patent to be eight years. The patent was carried in Craigs accounting records at a net book value of $3,500,000 when Craig sold it to Lewis.
During 2011, a franchise was purchased from Faragher Company for $360,000. In addition, 8% of revenue from the franchise must be paid to Faragher. Revenue from the franchise for 2011 was $1,950,000. Lewis estimates the useful life of the franchise to be 12 years and takes a full years amortization in the year of purchase.
Lewis incurred research and development costs in 2010 as follows.
|Materials and equipment||$286,500|
|Indirect costs||$ 95,355|
Lewis estimates that these costs will be recouped by December 31, 2014. The materials and equipment purchased have no alternative uses.
On January 1, 2011, because of recent events in the field, Lewis estimates that the remaining life of the patent purchased on June 1, 2010, is only five years from January 1, 2011.
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