Question

The following transactions were completed by Irvine Company during the current fiscal year ended December 31:

Feb. 8 Received 40% of the $18,500 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 $7,430 cash in full payment of Seth’s account.

Aug. 13 Wrote off the $6,470 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 $3,870 cash in full payment of the account.

Dec. 31 Wrote off the following accounts as uncollectible (compound entry): Newbauer Co., $7,245; Bonneville Co., $5,595; Crow Distributors, $9,500; Fiber Optics, $1,060.

Dec. 31 Based on an analysis of the $1,769,500 of accounts receivable, it was estimated that $35,390 will be uncollectible. Journalized the adjusting entry.

1. Record the January 1 credit balance of $25,330 in a T-account for Allowance for Doubtful Accounts.

2.

A. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles.

B. Post each entry that affects the following selected T-accounts and determine the new balances: Allowance for Doubtful Accounts and Bad Debt Expense.

3. Determine the expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).

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 $18,430,000 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.

CHART OF ACCOUNTS

Irvine Company

General Ledger

ASSETS

110 Cash

111 Petty Cash

121 Accounts Receivable-DeCoy Co.

122 Accounts Receivable-Seth Nelsen

123 Accounts Receivable-Kat Tracks Co.

124 Accounts Receivable-Crawford Co.

125 Accounts Receivable-Newbauer Co.

126 Accounts Receivable-Bonneville Co.

127 Accounts Receivable-Crow Distributors

128 Accounts Receivable-Fiber Optics

129 Allowance for Doubtful Accounts

131 Interest Receivable

132 Notes Receivable

141 Merchandise Inventory

145 Office Supplies

146 Store Supplies

151 Prepaid Insurance

181 Land

191 Store Equipment

192 Accumulated Depreciation-Store Equipment

193 Office Equipment

194 Accumulated Depreciation-Office Equipment

LIABILITIES

210 Accounts Payable

211 Salaries Payable

213 Sales Tax Payable

214 Interest Payable

215 Notes Payable

EQUITY

310 Common Stock

311 Retained Earnings

312 Dividends

313 Income Summary

REVENUE

410 Sales

610 Interest Revenue

EXPENSES

510 Cost of Goods Sold

520 Sales Salaries Expense

521 Advertising Expense

522 Depreciation Expense-Store Equipment

523 Delivery Expense

524 Repairs Expense

529 Selling Expenses

530 Office Salaries Expense

531 Rent Expense

532 Depreciation Expense-Office Equipment

533 Insurance Expense

534 Office Supplies Expense

535 Store Supplies Expense

536 Credit Card Expense

537 Cash Short and Over

538 Bad Debt Expense

539 Miscellaneous Expense

710 Interest Expense

1.	Record the January 1 credit balance of $25,330 in a T-account for Allowance for Doubtful Accounts.
2.	B. Post each entry that affects the following selected T-accounts and determine the new balances: Allowance for Doubtful Accounts and Bad Debt Expense.

Allowance for Doubtful Accounts
		Jan. 1 Balance
		Dec. 31 Adj. Balance

Bad Debt Expense
2. A. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. 1-20. I repeat 1-20. PAGE 10 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 1-20. I repeat 1-20. 3. Determine the expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry). $ 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 $18,430,000 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 1

1. Allowance for Doubtful Accounts:

Feb 8	$ 11,100	Balance, Jan 1	$ 25,330
Aug 13	6,470	May 27	7,430
Dec 31	23,400	Oct 31	3,870
		Bad Debt Expense	39,730
		Balance, Dec 31	35,390

2. A. In the books of Irvine Company:

Date	Account Titles	Debit	Credit
		$	$
Feb 8	Cash	7,400
	Allowance for Doubtful Accounts	11,100
	Accounts Receivable : DeCoy Co,		18,500
May 27	Accounts Receivable : Seth Nelson	7,430
	Allowance for Doubtful Accounts		7,430
May 27	Cash	7,430
	Accounts Receivable : Seth Nelson		7,430
Aug 13	Allowance for Doubtful Accounts	6,470
	Accounts Receivable: Kat Tracks Co.		6,470
Oct 31	Accounts Receivable: Crawford Co.	3,870
	Allowance for Doubtful Accounts		3,870
Oct 31	Cash	3,870
	Accounts Receivable: Crawford Co.		3,870
Dec 31	Allowance for Doubtful Accounts	23,400
	Accounts Receivable:Newbauer Co.		7,245
	Accounts Receivable:Bonnville Co.		5,595
	Accounts Receivable:Crow Distributors		9,500
	Accounts Receivable:Fiber Optics		1,060
Dec 31	Bad Debt Expense	39,730
	Allowance for Doubtful Accounts		39,730

3. Expected Net Realizable Value of Accounts Receivable, December 31 = $ 1,769,500 - $ 35,390 = $ 1,734,110.

4. A. Bad debt expense for the year = $ 18,430,000 x 0.25 % = $ 46,075.

B. Balance in Allowance Account = $ 41,735.

C. Expected Net Realizable Value of Accounts Receivable, Dec 31 = $ 1,769,500 - $ 41,735 = $ 1,727,765.