fiscal year ended December 31:
Feb. 8. Received 40% of the $18,000 balance owed by DeCoy Co., a bankrupt business, and wrote off the remainder as uncollectible.
May 27. Reinstated the account of Seth Nelsen, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,350 cash in full payment of Seth’s account.
Aug. 13. Wrote off the $6,400 balance owed by Kat Tracks Co., which has no assets.
Oct. 31. Reinstated the account of Crawford Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,880 cash in full payment of the account.
Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Newbauer Co., $7,190; Bonneville Co., $5,500; Crow Distributors, $9,400; Fiber Optics, $1,110.
31. Based on an analysis of the $1,785,000 of accounts receivable, it was estimated that $35,700 will be uncollectible. Journalized the adjusting entry.
Instructions
1. Record the January 1 credit balance of $26,000 in a T account for Allowance for
Doubtful Accounts.
2. Journalize the transactions. Post each entry that affects the following selected T accounts and determine the new balances: Allowance for Doubtful Accounts Bad Debt Expense
3. Determine the expected net realizable value of the accounts receivable as of December 31.
4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ¼ of 1% of the net sales of $18,200,000 for the year, determine the following:
a. Bad debt expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.
Answer:
2. 20—
Feb. 8 Cash 7,200
Allowance for Doubtful Accounts 10,800
Accounts Receivable—DeCoy Co. 18,000
May 27 Accounts Receivable—Seth Nelsen 7,350
Allowance for Doubtful Accounts 7,350
27 Cash 7,350
Accounts Receivable—Seth Nelsen 7,350
Aug. 13 Allowance for Doubtful Accounts 6,400
Accounts Receivable—Kat Tracks Co. 6,400
Oct. 31 Accounts Receivable—Crawford Co. 3,880
Allowance for Doubtful Accounts 3,880
31 Cash 3,880
Accounts Receivable—Crawford Co. 3,880
Dec. 31 Allowance for Doubtful Accounts 23,200
Accounts Receivable—Newbauer Co. 7,190
Accounts Receivable—Bonneville Co. 5,500
Accounts Receivable—Crow Distributors 9,400
Accounts Receivable—Fiber Optics 1,110
31 Bad Debt Expense 38,870
Allowance for Doubtful Accounts 38,870
Uncollectible accounts estimate
($35,700 + $3,170).
1. and 2.
Allowance for Doubtful Accounts
Feb. 8 10,800 Jan. 1 Balance 26,000
Aug. 13 6,400 May 27 7,350
Dec. 31 23,200 Oct. 31 3,880
Dec. 31 Unadjusted Balance 3,170
Dec. 31 Adjusting Entry 38,870
Dec. 31 Adj. Balance 35,700
Bad Debt Expense
Dec. 31 Adjusting Entry 38,870
3. $1,749,300 ($1,785,000 – $35,700)
4.
a. $45,500 ($18,200,000 × 0.0025)
b. $42,330 ($45,500 – $3,170)
c. $1,742,670 ($1,785,000 – $42,330)