Question

Aardvark Company sells merchandise only on credit. For the year ended December 31, 2018, the following data are available:

Sales (all on credit)	$1,200,000
Accounts Receivable, January 1, 2018	225,000
Allowance for doubtful accounts, January 1, 2018 (credit)	15,000
Cash collections on A/R during 2018	1,050,000
Accounts written off as uncollected (default) during 2018	10,000

Determine the balance of Accounts Receivable at December 31, 2018.

    

Assume that the company estimates bad debts at 2% of credit sales. What amount will the company record as bad debt expense for 2018?

What is the net realizable value of the receivables to be reported on the balance sheet at year-end (assuming % of credit sales method was used by Aardvark)?

Assume instead the company estimates the allowance for doubtful accounts based on the aging of receivables method. Estimate the allowance for doubtful accounts at December 31, 2018 using the information provided below:

AGE CLASS                     % UNCOLLECTIBLE              AMOUNT

Not Past Due                     1%                                           $200,000                     

1-30 Days Past Due           5%                                           $100,000

31-60 Days Past Due         10%                                         $40,000                       

61-90 Days Past Due         25%                                         $20,000

Over 90 Days Past Due     50%                                         $5,000

Answer 1

a.)		Amount $
	Accounts Receivable, January 1, 2018	225,000
	Add: Sales (all on credit)	1,200,000
	Less :Cash collections on A/R during 2018	-1,050,000
	Less : Accounts written off as uncollected (default) during 2018	-10,000
	Balance of Accounts Receivable at December 31, 2018.	365,000
b.)	The company will record as bad debt expense for 2018	$ 24,000	=1200000*2%
c.)		Amount $
	Allowance for doubtful accounts, January 1, 2018	15,000
	Less : Accounts written off as uncollected (default) during 2018	-10,000
	Add: Bad debt expense for 2018	24,000
	Allowance for doubtful accounts, December 31, 2018	29,000
	Net realizable value of the receivables to be reported on the balance sheet at year-end	$ 336,000	=365000-29000

d.)		A	B	A x B
	AGE CLASS	% Uncollectible	Amount	Uncollectible Amount
	Not Past Due	1%	200,000	2,000
	1-30 Days Past Due	5%	100,000	5,000
	31-60 Days Past Due	10%	40,000	4,000
	61-90 Days Past Due	25%	20,000	5,000
	Over 90 Days Past Due	50%	5,000	2,500
			365,000	18,500

The allowance for doubtful accounts at December 31, 2018

$ 18,500