Question

In: Accounting

The following information is available for Quality Book Sales' sales on account and accounts receivable: Accounts...

The following information is available for Quality Book Sales' sales on account and accounts receivable:

Accounts receivable balance, January 1, Year 2 $ 125,900
Allowance for doubtful accounts, January 1, Year 2 3,520
Sales on account, Year 2 812,740
Collection on accounts receivable, Year 2 844,776


After several collection attempts, Quality Book Sales's wrote off $2,520 of accounts that could not be collected. Quality Book Sales estimates that 1.25 percent of sales on account will be uncollectible.

Required
a. Compute the following amounts:

  1. (1) Using the allowance method, the amount of uncollectible accounts expense for Year 2. (Round your final answer to nearest whole dollar amount.)
  2. (2) The net realizable value of receivables at the end of Year 2. (Round your intermediate calculations and final answer to nearest whole dollar amount.)




b. Why is the uncollectible accounts expense amount different from the amount that was written off as uncollectible?

  • Uncollectible accounts expense is the actual amount that was determined in the current accounting period to be uncollectible.
  • Uncollectible accounts expense is an estimate of current receivables that may eventually be uncollectible.

Solutions

Expert Solution

Answer:

Accounts Receivable

Allowance for Doubtful Accounts

Bal.                   125,900

Bal.                      3,520

sales                812,740

coll.                 844,766

write-off       2,520

write-off             2,520

Bal.                      1,000

Bal.                   91,354

est.                          141.925

Bal. 1,141.925

a. (1)    $91,354 x 1.25%              = $1141.925 - $1,000 = 141.925

a. (2)    $91,354 - $1,141.925 = $90,212.075

b.         The amount recorded as an expense is an estimate based on the current balance of accounts receivable.  It is not currently known which specific accounts are not collectible.  The amount that was written off as uncollectible are those accounts that have actually been determined to be uncollectible.

refer entries:

Event

Account Title

Debit

Credit

1.

Accounts Receivable

812,740

            Sales Revenue

812,740

2.

Cash

844,766

            Accounts Receivable

844,766

3.

Allowance for Doubtful Accounts

2,520

            Accounts Receivable

2,520

4.

Uncollectible Accounts Expense

141.925

            Allowance for Doubtful Accts.

141.925


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