In: Accounting
Allowance method entries
The following transactions were completed by Wild Trout Gallery during the current fiscal year ended December 31:
Jan. 19. Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalized the receipt of $1,965 cash in full payment of Arlene's account.
Apr. 3. Wrote off the $11,260 balance owed by Premier GS Co., which is bankrupt.
July 16. Received 25% of the $20,200 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible.
Nov. 23. Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $3,205 cash in full payment.
Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $8,470 ; Fogle Co., 52,515; Lake Furniture, $ 6,465; Melinda Shryer, $1,825.
Dec. 31. Based on an analysis of the $998, 200 of accounts receivable, it was estimated that $43,400 will be uncollectible. Journalized the adjusting entry.
Required:
1. Record the January 1 credit balance of $41,300 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts.
2.a. Journalize the transactions. If an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the 5998, 200 balance in accounts receivable reflects the adjustments made during the year.
2.b. Post each entry that affects the following T accounts and determine the new balances:
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 12 of 1% of the sales of $6,160,000 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 (after all of the adjustments and the adjusting entry).
Answer 1
Transactions under the allowance method | |||
Date | Account title | Debit | Credit |
Jan 19 | Accounts receivable - Arlene Gurley | $ 1,965 | |
Allowance for Doubtful Accounts | $ 1,965 | ||
To reinstate Accounts receivable. | |||
Jan 19 | Cash | $ 1,965 | |
Accounts receivable - Arlene Gurley | $ 1,965 | ||
To record Collection on account. | |||
Apr 3 | Allowance for Doubtful Accounts | $ 11,260 | |
Accounts receivable -GS. CO | $ 11,260 | ||
To record account write off. | |||
July 16 | Cash (20200*25%) | $ 5,050 | |
Allowance for Doubtful Accounts (20200-5050) | $ 15,150 | ||
Accounts receivable - Hayden Co. | $ 20,200 | ||
To record collection from customer and remainder amount is write off. | |||
Nov 23 | Accounts receivable - Harry Car | $ 3,205 | |
Allowance for Doubtful Accounts | $ 3,205 | ||
To reinstate Accounts receivable. | |||
Nov 23 | Cash | $ 3,205 | |
Accounts receivable - Harry Car | $ 3,205 | ||
To record Collection on account. | |||
Dec 31 | Allowance for Doubtful Accounts | $ 19,275 | |
Accounts receivable -Cavey Co | $ 8,470 | ||
Accounts receivable - Fogle Co | $ 2,515 | ||
Accounts receivable - Lake Furniture | $ 6,465 | ||
Accounts receivable - Melinda shryer | $ 1,825 | ||
To record accounts write off. | |||
Dec 31 | Bad debt expense | $ 42,615 | |
Allowance for Doubtful Accounts | $ 42,615 | ||
To record bad debts expense. |
Allowance for Doubtful Accounts | $ 41,300 | |
Add | Reinstate Accounts receivable (Jan 19) | $ 1,965 |
Less | Account write off (Apr 3) | $ (11,260) |
Less | Account write off (July 16) | $ (15,150) |
Add | Reinstate Accounts receivable (Nov 23) | $ 3,205 |
Less | Account write off (Dec 31) | $ (19,275) |
Unadjusted credit balance of Allowance for Doubtful Accounts | $ 785 | |
Adjusted credit balance of Allowance for Doubtful Accounts | $ 43,400 | |
Less: | Unadjusted credit balance of Allowance for Doubtful Accounts | $ 785 |
Adjustment entry for bad debts expense | $ 42,615 |
Answer 2
Allowance for Doubtful Accounts | |||
Apr 3 | $ 11,260 | Jan 1. Balance | $ 41,300 |
July 16 | $ 15,150 | Jan 19 | $ 1,965 |
Dec 31 | $ 19,275 | Nov 23 | $ 3,205 |
Dec 31. Unadjusted Balance | $ 785 | ||
Dec 31. Adj Entry | $ 42,615 | ||
Dec 31. Adjusted Balance | $ 43,400 | ||
Bad debt expense | |||
Dec 31. Adj Entry | $ 42,615 | ||
Answer 3
Accounts receivable | $ 998,200 |
Less: Adjusted credit balance of Allowance for Doubtful Accounts | $ (43,400) |
Net realizable value of accounts receivable | $ 954,800 |
Answer 4
Bad debts expense (6160000*1%*1/2) | $ 30,800 |
Unadjusted credit balance of Allowance for Doubtful Accounts | $ 785 |
Add: Adjustment entry for bad debts expense | $ 30,800 |
Balance in allowance account after adjustment of December 31 | $ 31,585 |
Accounts receivable | $ 998,200 |
Less: Adjusted credit balance of Allowance for Doubtful Accounts | $ (31,585) |
Net realizable value of accounts receivable | $ 966,615 |