In: Accounting
At the beginning of 2016, Miyazaki Company’s Accounts Receivable balance was $105,000, and the balance in Allowance for Doubtful Accounts was $1,950. Miyazaki’s sales in 2016 were $787,500, 80% of which were on credit. Collections on account during the year were $502,500. The company wrote off $3,000 of uncollectible accounts during the year.
Required:
1. | Prepare summary journal entries related to the sales, collections, and write-offs of accounts receivable during 2016. |
2. | Prepare journal entries to recognize bad debts assuming that (a) bad debts expense is 3% of credit sales and (b) amounts expected to be uncollectible are 6% of the year-end accounts receivable. |
3. | What is the net realizable value of accounts receivable on December 31, 2016, under each assumption in part (2)? |
4. | What effect does the recognition of bad debts expense have on the net realizable value? What effect does the write-off of accounts have on the net realizable value? |