Question

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. Journalize the receipt of $2,585 cash in full payment of Arlene’s account.
Apr. 3.	Wrote off the $14,810 balance owed by Premier GS Co., which is bankrupt.
July 16.	Received 25% of the $26,600 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 $4,215 cash in full payment.
Dec. 31.	Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $11,140 ; Fogle Co., $3,310 ; Lake Furniture, $ 8,505 ; Melinda Shryer, $2,405.
Dec. 31.	Based on an analysis of the $1,311,000 of accounts receivable, it was estimated that $57,000 will be uncollectible. Journalize the adjusting entry.

Required:

1. Record the January 1 credit balance of $54,300 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 $1,311,000 balance in accounts receivable reflects the adjustments made during the year.

Jan. 19-reinstate
Jan. 19-collection
Apr. 3
July 16
Nov. 23-reinstate
Nov. 23-collection
Dec. 31-write-off
Dec. 31-adjusting

2. b. Post each entry that affects the following T accounts and determine the new balances:

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

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 ½ of 1% of the sales of $8,090,000 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

2. Journal entries

Date	Account Titles	Debit	Credit
Jan. 19	Accounts Receivable - Arlene Gurley	2,585
	Allowance for Doubtful Accounts		2,585
Jan. 19	Cash	2,585
	Accounts Receivable - Arlene Gurley		2,585
Apr. 3	Allowance for Doubtful Accounts	14,810
	Accounts Receivable - Premier GS Co.		14,810
Jul. 16	Cash (26,600 * 25%)	6,650
	Allowance for Doubtful Accounts (26,600 * 75%)	19,950
	Accounts Receivable - Haydon Co.		26,600
Nov. 23	Accounts Receivable - Harry Carr	4,215
	Allowance for Doubtful Accounts		4,215
Nov. 23	Cash	4,215
	Accounts Receivable - Harry Carr		4,215
Dec. 31	Allowance for Doubtful Accounts	25,360
	Accounts Receivable - Cavey Co.		11,140
	Accounts Receivable - Fogle Co.		3,310
	Accounts Receivable - Lake Furniture		8,505
	Accounts Receivable - Melinda Shryer		2,405
Dec. 31	Bad Debt Expense*	56,020
	Allowance for Doubtful Accounts		56,020

* Adjustment entry for bad debts expense

Allowance for Doubtful Accounts	54300
Reinstate Accounts receivable (Jan 19)	2585
Account write off (Apr 3)	-14810
Account write off (July 16)	-19950
Reinstate Accounts receivable (Nov 23)	4215
Account write off (Dec 31)	-25360
Unadjusted credit balance of Allowance for Doubtful Accounts	980
Adjusted credit balance of Allowance for Doubtful Accounts	57000
Unadjusted credit balance of Allowance for Doubtful Accounts	-980
Adjustment entry for bad debts expense	56020

2 b. T-accounts

Allowance for Doubtful Accounts
Apr. 3	14,810	Jan. 1 Balance	54,300
Jul. 16	19,950	Jan. 19	2,585
Dec. 31	25,360	Nov. 23	4,215
		Dec. 31 Adjusting Entry	56,020
		Dec. 31 Adjusted Balance	57,000

Bad debt expense
Dec. 31 Adjusting Entry	56,020

3. Net Realizable value of Accounts Receivable = Ending Balance - Balance of Allowance for Doubtful Accounts

= $1,311,000 - $57,000

= $1,254,000

4 a. Bad debt expense for the year = Sales * 1% * 1/2

= $8,090,000 * 1% * 1/2

= $40,450

4 b.

Allowance for Doubtful Accounts
Apr. 3	14,810	Jan. 1 Balance	54,300
Jul. 16	19,950	Jan. 19	2,585
Dec. 31	25,360	Nov. 23	4,215
		Dec. 31 Adjusting Entry	40,450
		Dec. 31 Adjusted Balance	41,430

4 c. Net Realizable value of Accounts Receivable = Ending Balance - Balance of Allowance for Doubtful Accounts

= $1,311,000 - $41,430

= $1,269,570