Question

Entries Related to Uncollectible Accounts

The following transactions were completed by The 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. Journalized the receipt of $2,550 cash in full payment of Arlene’s account.
Apr. 3.	Wrote off the $14,610 balance owed by Premier GS Co., which is bankrupt.
July 16.	Received 40% of the $26,200 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 $4,155 cash in full payment.
Dec. 31.	Wrote off the following accounts as uncollectible (one entry): Cavey Co.,$10,990; Fogle Co., $3,265; Lake Furniture, $8,390; Melinda Shryer, $2,370.
Dec. 31.	Based on an analysis of the $1,294,900 of accounts receivable, it was estimated that $56,300 will be uncollectible. Journalized the adjusting entry.

Required:

1. Record the January 1 credit balance of $53,600 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts.

2. a. Journalize the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the $1,294,900 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 $7,990,000 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

1.

Allowance for Doubtful Accounts
		Jan-01	$         53,600
		Dec-31

2. a.

Date	Account Titles	Debit	Credit
Jan-19	Accounts Receivable	$            2,550
	Allowance for Doubtful Accounts		$            2,550
	Cash	$            2,550
	Accounts Receivable		$            2,550
Apr-03	Allowance for Doubtful Accounts	$          14,610
	Accounts Receivable		$          14,610
Jul-16	Cash	$          10,480
	Allowance for Doubtful Accounts	$          15,720
	Accounts Receivable		$          26,200
Nov-23	Accounts Receivable	$            4,155
	Allowance for Doubtful Accounts		$            4,155
	Cash	$            4,155
	Accounts Receivable		$            4,155
Dec-31	Allowance for Doubtful Accounts	$          25,015
	Accounts Receivable		$          25,015
Dec-31	Bad Debt Expense	$          51,340
	Allowance for Doubtful Accounts		$          51,340

2b.

Allowance for Doubtful Accounts
Apr-03	$          14,610	Jan-01	$         53,600
Jul-16	$          15,720	Jan-19	$           2,550
Dec-31	$          25,015	Nov-23	$           4,155
		Dec-31	$         51,340
		Dec-31	$         56,300
Bad Debt Expense
Dec-31	$          51,340
Dec-31	$          51,340

3.
Net Realizable Value of Accounts Receivable = $1294900-56300 = $1238600

4.
a. Bad Debt Expense = $7990000 x 1% = $79900

b. Balance in allowance account = $79900+4960 = $84860

c. Net Realizable Value of Accounts Receivable = $1294900-84860 = $1210040