Question

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

Feb. 8	Received 40% of the $18,000 balance owed by DeCoy Co., a bankrupt business, and wrote off the remainder as uncollectible.
May 27	Reinstated the account of Seth Nelsen, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,350 cash in full payment of Seth’s account.
Aug. 13	Wrote off the $6,400 balance owed by Kat Tracks Co., which has no assets.
Oct. 31	Reinstated the account of Crawford Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,880 cash in full payment of the account.
Dec. 31	Wrote off the following accounts as uncollectible (compound entry): Newbauer Co., $7,190; Bonneville Co., $5,500; Crow Distributors, $9,400; Fiber Optics, $1,110.
Dec. 31	Based on an analysis of the $1,785,000 of accounts receivable, it was estimated that $35,700 will be uncollectible. Journalized the adjusting entry.

1.	Record the January 1 credit balance of $26,000 in a T-account for Allowance for Doubtful Accounts.
2.	A. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. B. Post each entry that affects the following selected T-accounts and determine the new balances: Allowance for Doubtful Accounts and 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 ¼ of 1% of the net sales of $18,200,000 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. CHART OF ACCOUNTSIrvine CompanyGeneral Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable-DeCoy Co. 122 Accounts Receivable-Seth Nelsen 123 Accounts Receivable-Kat Tracks Co. 124 Accounts Receivable-Crawford Co. 125 Accounts Receivable-Newbauer Co. 126 Accounts Receivable-Bonneville Co. 127 Accounts Receivable-Crow Distributors 128 Accounts Receivable-Fiber Optics 129 Allowance for Doubtful Accounts 131 Interest Receivable 132 Notes Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 520 Sales Salaries Expense 521 Advertising Expense 522 Depreciation Expense-Store Equipment 523 Delivery Expense 524 Repairs Expense 529 Selling Expenses 530 Office Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Office Supplies Expense 535 Store Supplies Expense 536 Credit Card Expense 537 Cash Short and Over 538 Bad Debt Expense 539 Miscellaneous Expense 710 Interest Expense 1. Record the January 1 credit balance of $26,000 in a T-account for Allowance for Doubtful Accounts. 2. B. Post each entry that affects the following selected T-accounts and determine the new balances: Allowance for Doubtful Accounts and Bad Debt Expense. Allowance for Doubtful Accounts Jan. 1 Balance Dec. 31 Adj. Balance Bad Debt Expense A. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. PAGE 10 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 . 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 ¼ of 1% of the net sales of $18,200,000 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. $

Answer 1

1.

Allowance for Doubtful Accounts
		Jan. 1 Balance	$      26,000

2. a.

Date	Account Titles	Debit	Credit
Feb-08	Cash	$            7,200
	Allowance for Doubtful Accounts	$          10,800
	Accounts Receivable-DeCoy Co.		$         18,000
May-27	Accounts Receivable-Seth Nelson	$            7,350
	Allowance for Doubtful Accounts		$           7,350
	Cash	$            7,350
	Accounts Receivable-Seth Nelson		$           7,350
Aug-13	Allowance for Doubtful Accounts	$            6,400
	Accounts Receivable-Kat Tracks Co.		$           6,400
Oct-31	Accounts Receivable-Crawford Co.	$            3,880
	Allowance for Doubtful Accounts		$           3,880
	Cash	$            3,880
	Accounts Receivable-Vinyl Co.		$           3,880
Dec-31	Allowance for Doubtful Accounts	$          23,200
	Accounts Receivable-Newbauer Co.		$           7,190
	Accounts Receivable-Bonneville Co.		$           5,500
	Accounts Receivable-Crow Distributors		$           9,400
	Accounts Receivable-Fiber Optics		$           1,110
Dec-31	Bad Debt Expense	$          38,870
	Allowance for Doubtful Accounts		$         38,870

2. b.

Allowance for Doubtful Accounts
Feb. 8	$         10,800	Jan. 1 Balance	$      26,000
Aug. 13	$           6,400	May. 27	$        7,350
Dec. 31	$         23,200	Oct. 31	$        3,880
Dec. 31 Unadjusted Balance	$           3,170
		Dec. 31 Adjusting Entry	$      38,870
		Dec. 31 Adj. Balance	$      35,700
Bad Debt Expense
Dec. 31 Adjusting Entry	$         38,870
Dec. 31 Balance	$         38,870

3. Net Realizable value = $1785000 - 35700 = $1749300

4.
a. Bad Debt Expense = $18200000 x 0.25% = $45500

b. Balance of Allowance account = $45500-3170 = $42330

c. Net Realizable value = $1785000 - 42330 = $1742670