Question

In: Accounting

At December 31 of the current year, Vulcan Company had a balance of $728,000 in its...

At December 31 of the current year, Vulcan Company had a balance of $728,000 in its Accounts Receivable account and a credit balance of $6,000 in the Allowance for Doubtful Accounts. The company has aged its accounts as follows:

Current

$592,000

0-60 days past due

64,000

61-180 days past due

48,000

Over 180 days past due

    24,000

$728,000

In the past, the company has experienced losses as follows: 1% of current balances, 5% of balances 0-60 days past due, 15% of balances 61-180 days past due, and 30% of balances over 180 days past due. The company bases its bad debts expense on the aging analysis.

Required:

  1. Prepare the adjusting journal entry to record the bad debts expense for the year.
  2. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet.
  3. On January 15 of the subsequent year, Vulcan Company wrote off the account of Moon, $1,385. Give the entry for the write-off.
  4. On February 20 of the subsequent year, Vulcan Company collected the $1,385 on the Moon account written off on January 15. Give the entry or entries for the recovery.

Solutions

Expert Solution

Days Account Outstanding % uncollectiable Uncollectible
Current    592,000.00 1%           5,920.00
0-60      64,000.00 5%           3,200.00
61-180      48,000.00 15%           7,200.00
More than 180 days      24,000.00 30%           7,200.00
   728,000.00         23,520.00

a)

Debit Credit
Bad Debt Expense      17,520.00
Allowance for Doubtful Accounts      17,520.00

b)

Accounts Receivable    728,000.00
Less: Allowance for doubtful Accounts -   23,520.00
Total Accounts Receivable    704,480.00

c.

   Debit    Credit
Allowance for doubtful Accounts        1,385.00
Accounts Receivable- Moon      1,385.00

d.

Debit Credit
Accounts Receivable- Moon      1,385.00
Allowance for doubtful Accounts        1,385.00
Cash      1,385.00
Accounts Receivable- Moon      1,385.00

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