Question

Donovan Carrier Corp has an Accounts Receivable Balance of $1,065,000 and an Allowance for Doubtful Accounts of $99,500 as of 12/31/18. In 2019, Donovan has credit sales of $2,900,000 and collections on account of $3,020,000. They write-off $103,000 in uncollectible accounts in 2019. Their financial manager estimates 14% of their accounts receivable will be uncollectible as of 12/31/19.

REQUIRED : Provide the journal entry for Donovan for the account write-offs for 2019.

REQUIRED : Provide the adjusting journal entry for Donovan for the bad debt expense on December 31, 2019.

REQUIRED : Provide the Net Realizable Value of Accounts Receivable for Donovan on December 31, 2019.

REQUIRED : Provide the bad debt expense for Donovan with all of the same facts as above, but assume the financial manager uses 6% (instead of 14%) of the Accounts receivable balance for the Allowance for Uncollectible Accounts on December 31, 2019.

Answer 1

Answer 1)

Journal Entry for Write off for 2019

Account Titles and Explanation	Debit	Credit
Allowance for doubtful debts	$103,000
Accounts receivable		$103,000
(To record account write-off in the year 2019)

Answer 2)

Journal Entry for bad debts expense for 2019

Account Titles and Explanation	Debit	Credit
Bad Debts	$121,380
Allowance for doubtful debts		$121,380
(To record bad debts expense for the year 2019)

Working Note:
Calculation of closing balance of account receivable in 2019:

Closing Balance of accounts receivable = Opening balance of accounts receivable + credit sales for the year 2019 – Cash collected from accounts receivable in 2019 – accounts receivable written off in 2019

                                 = $ 1,065,000 + $ 2,900,000 - $ 3,020,000 - $ 103,000

                                 = $ 842,000

Calculation of closing balance of allowance for doubtful debts for the year 2019:

Closing balance of allowance for doubtful debts = Closing balance of accounts receivable X Estimated percentage of doubtful debts

                                                                 = $ 842,000 X 14%

                                                                 = $ 117,880

Calculation of bad debts expense for the year 2019:

Bad debts expense for the year 2019 = Closing balance of Allowance for doubtful debts + Accounts receivable written off in 2019 – Opening balance of Allowance for doubtful debts

                                   = ($ 842,000 X 14%) + $ 103,000 - $ 99,500

                                   = $ 121,380

Ledger Accounts (not to form part of answer – Just for better understanding)

Accounts Receivable
Debit	Credit
Particulars	Amount (In $)	Particulars	Amount (In $)
Balance b/d	1,065,000	Cash	3,020,000
Credit Sales	2,900,000	Allowance for doubtful debts	103,000
		Balance c/d	842,000
Total	3,965,000	Total	3,965,000

Allowance for Doubtful Debts
Debit	Credit
Particulars	Amount (In $)	Particulars	Amount (In $)
Accounts receivable	103,000	Balance b/d	99,500
		Bad Debts (Balancing Figure)	121,380
Balance b/d ($ 842,000 X 14%)	117,880
Total	220,880	Total	220,880

Answer 3)

Calculation of Net realizable value of Accounts receivable on December 31, 2019

Net Realizable Value = Balance of gross accounts receivable as on December 31, 2019 - Balance of Allowance for doubtful debts as on December 31, 2019

                                                 = $ 842,000 - $ 117,880

                                                = $ 724,120         

Answer 4)

Calculation of bad debts expense for 2019 if Allowance for doubtful debts are estimated to be 6%

Bad debts expense for the year 2019 = Closing balance of Allowance for doubtful debts + Accounts receivable written off in 2019 – Opening balance of Allowance for doubtful debts

                                   = $ 50,520 + $ 103,000 - $ 99,500

                                   = $ 54,020

Calculation of closing balance of allowance for doubtful debts for the year 2019:

Closing balance of allowance for doubtful debts = Closing balance of accounts receivable X Estimated percentage of doubtful debts

                                                                 = $ 842,000 X 6%

                                                                 = $ 50,520

Ledger Accounts (not to form part of answer – Just for better understanding)

Allowance for Doubtful Debts
Debit	Credit
Particulars	Amount (In $)	Particulars	Amount (In $)
Accounts receivable	103,000	Balance b/d	99,500
		Bad Debts (Balancing Figure)	54,020
Balance b/d ($ 842,000 X 6%)	50,520
Total	153,520	Total	153,520