Question

Amber Corp. – Accounting for Accounts Receivable (all dollar values are in 000’s).

On December 31, 2015 Amber Co. reported "Accounts Receivable, net realizable value" of $5,440 on their balance sheet and "Allowance for Uncollectible Accounts" of $325 in their footnotes. Thus, the gross amount of accounts receivable is $5,765.

The company's sales grew dramatically in 2016, and the total credit sales, net of returns were $96,755. They collected cash from customers on account of $86,775. The company wrote off accounts of $425.

Management using the Accounts Receivable approach for estimating uncollectable accounts. Amber's credit terms are that accounts are due within 60 days. On December 31, 2016, Amber found that 50% of the accounts were not past due, 25% were 60-90 days old, and 25% were over 90 days old. Amber assesses the probability of collection as follows: not past due at 98%, 60-90 days past due at 96%, and over 90 days past due at 90%.

1. What is the total dollar amount owed to Amber Company by its customers at December 31, 2015?

2. What is the total dollar amount owed to Amber Company by its customers at December 31, 2016?

3. What is the balance in the allowance for uncollectible accounts at December 31, 2016?

4. What is the net realizable value of accounts receivable at December 31, 2016?

5. Show how the receivables would be reported on the balance sheet at December 31, 2016.

6. What amount will be reported for bad debts expense (i.e., provision for bad debts) on the income statement for the fiscal year ended December 31, 2016?

Answer 1

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1. What is the total dollar amount owed to Amber Company by its customers at December 31, 2015?

It is the gross amount of accounts receivable at the end of 2015 i.e. $5,765.

2. What is the total dollar amount owed to Amber Company by its customers at December 31, 2016?

Opening gross receivable	5,765.00
Add: Credit sales	96,755.00
Less: Collection	86,775.00
Less: Written off	425.00
Amount owed on December 31, 2016	15,320.00

3. What is the balance in the allowance for uncollectible accounts at December 31, 2016?

Calculation of allowance for doubtful accounts:

Day's outstanding	Total	Not past due	60-90 days	Over 90 days	Total
% outstanding		50%	25%	25%
Amount outstanding	15,320.00	7,660.00	3,830.00	3,830.00
Probability of collection		98%	96%	90%
Probability uncollectible		2%	4%	10%
Amount uncollectible		153.20	153.20	383.00	689.40

So balance in the allowance for uncollectible accounts at December 31, 2016 is $ 689.40.

Answer 4
Amount owed on December 31, 2016	15,320.00
Less: Allowance for Uncollectible Accounts	689.40
Net realizable value of accounts receivable at December 31, 2016	14,630.60
Answer 5	Balance Sheet
Accounts receivable (Gross)	15,320.00
Less: Allowance for Uncollectible Accounts	689.40
Accounts receivable (Net)	14,630.60
Answer 6	Amount $	Note
Opening balance in Allowance for Uncollectible Accounts	325.00	A
Bad debt written off	425.00	B
Balance available	100.00	C=B-A
Amount uncollectible	689.40	D
Bad debt expense for the year	789.40	E=C+D