Question

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

Mar. 30           Received 60% of the $24,000 balance owed by Geeking, Inc., and wrote off the remainder as uncollectible.

June 29            Wrote off $6,500 balance owed by Seeking Inc., which has filed bankruptcy.

Sept. 20           Reinstated the account of Leaking Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $12,500 cash in full payment of the account.

Dec. 31            Wrote off the following accounts as uncollectible (compound entry): Reeking Co., $5,000; Teaking, Inc., $3,500 and Weeking Corporation, $2,800.

Instructions:

1. Record the January 1 credit balance of $20,000 in a T account for Allowance for Doubtful Accounts.
2. Journalize the transactions. Post each entry that affects the following selected T account and determined the new balances:

Allowance for Doubtful Accounts

Bad Debt Expense

3. Journalize the adjusting entry to record bad debt expense; if an analysis of the $950,000 of accounts receivable estimates that $15,000 will be uncollectible.
4. Calculate expected net realizable value based upon the results from Part 3.
5. Assume that instead of basing the provision of uncollectible accounts on an analysis of receivables the adjusting entry on December 31 had been based on an estimated expense of 1.75% of net sales of $1,000,000 for the year, determine the following:
   1. Bad debt expense for the year (by recording a new journal entry)
   2. Balance in the allowance account after the adjustment from #5 part a.
   3. Expected net realizable value of accounts receivable using #5 part b.

Answer 1

Allowance for Doubtful Accounts
Mar. 30		9600	Jan. 1	Balance	20000
June 29		6500	Sept. 20		12500
Dec. 31		11300
			Dec. 31	Unadjusted Balance	5100
			Dec. 31	Adjusting entry	9900
			Dec. 31	Adj. Balance	15000
Bad Debt Expense
Dec. 31	Adjusting entry	9900

Date	General Journal	Debit	Credit
Mar. 30	Cash (60% x $24000)	14400
	Allowance for Doubtful Accounts	9600
	Accounts receivable-Geeking, Inc.		24000
June 29	Allowance for Doubtful Accounts	6500
	Accounts receivable-Seeking, Inc.		6500
Sept. 20	Accounts receivable-Leaking Co.	12500
	Allowance for Doubtful Accounts		12500
Sept. 20	Cash	12500
	Accounts receivable-Leaking Co.		12500
Dec. 31	Allowance for Doubtful Accounts	11300
	Accounts receivable-Reeking Co.		5000
	Accounts receivable-Teaking, Inc.		3500
	Accounts receivable-Weeking Corp.		2800

Date	General Journal	Debit	Credit
Dec. 31	Bad debt expense	9900
	Allowance for Doubtful Accounts		9900

Expected net realisable value: $935,000

Accounts receivable	950000
Less: Allowance for Doubtful Accounts	15000
Net realizable value $	935000

Date	General Journal	Debit	Credit
Dec. 31	Bad debt expense (1.75% x $1000000)	17500
	Allowance for Doubtful Accounts		17500

Balance in the allowance account after adjustment of December 31: $22,600

$5100 + $17500 = $22600

Expected net realizable value of accounts receivable as of December 31: $927400

Accounts receivable	950000
Less: Allowance for Doubtful Accounts	22600
Net realizable value $	927400