In: Accounting
Web Wizard, Inc., has provided information technology services
for several years. The company uses the percentage of credit sales
method to estimate bad debts for internal monthly reporting
purposes. At the end of each quarter, the company adjusts its
records using the aging of accounts receivable method. The company
entered into the following selected transactions during the first
quarter of 2017:
Customer | Total | 0-30 | 31-60 | 61-90 | Over 90 | ||||||||||
Altavista Tourism | $ | 200 | $ | 100 | $ | 80 | $ | 20 | |||||||
Bayling Bungalows | 400 | $ | 400 | ||||||||||||
Others (not shown to save space) | 17,000 | 6,800 | 8,400 | 1,000 | 800 | ||||||||||
Xciting Xcursions | 400 | 400 | |||||||||||||
Total Accounts Receivable | $ | 18,000 | $ | 7,300 | $ | 8,480 | $ | 1,020 | $ | 1,200 | |||||
Estimated uncollectable (%) | 2 | % | 10 | % | 20 | % | 40 | % | |||||||
1-a. For items (a) through (j),
analyze the amount and effects on specific financial statement
accounts and the overall accounting equation. (Enter any
decreases to the account with a minus sign.)
-b. Prepare the journal entries for the
above items. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field.)
2. Show how the receivables related to these
transactions would be reported in the current assets section of a
classified balance sheet. (Amounts to be deducted should be
indicated by a minus sign.)
3. Name the accounts related to Accounts Receivable and Note Receivable that would be reported on the income statement and indicate whether they would appear before or after Income from Operations.
1a:
Event | Assets | = | Liabilities | + | Stockholder's Equity | |||
a | Accounts receivables | $4,00,000.00 | Service revenue | $4,00,000.00 | ||||
b | Allowance for doubtful accounts | -$4,000.00 | Bad debts expense | -$4,000.00 | ||||
c | Cash | $20,000.00 | ||||||
Accounts receivables | -$20,000.00 | |||||||
d | Allowance for doubtful accounts | $100.00 | ||||||
Accounts receivables | -$100.00 | |||||||
e | Accounts receivables | $30,000.00 | Service revenue | $30,000.00 | ||||
f | Allowance for doubtful accounts | -$300.00 | Bad debts expense | -$300.00 | ||||
g | Note receivables | $2,400.00 | ||||||
Cash | -$2,400.00 | |||||||
h | Accounts receivables | $100.00 | ||||||
Allowance for doubtful accounts | -$100.00 | |||||||
Cash | $100.00 | |||||||
Accounts receivables | -$100.00 | |||||||
i | Interest receivables | $12.00 | Interest revenue | $12.00 | ||||
J | Allowance for doubtful accounts (1678-1200) | -$478.00 | Bad debts expense | -$478.00 |
Working note:
Computation of allowance for estimated uncollectibles - Web Wizard | |||||
Customer | Balance | 0-30 days | 31-60 days | 61-90 days | Over 90 days |
Total Receivables | $18,000.00 | $7,300.00 | $8,480.00 | $1,020.00 | $1,200.00 |
Percentage uncollectibles | 2% | 10% | 20% | 40% | |
Allowance for doubtful accounts | $1,678.00 | $146.00 | $848.00 | $204.00 | $480.00 |
1b:
Journal Entries | |||
Event | Particulars | Debit | Credit |
a | Accounts receivables Dr | $4,00,000.00 | |
To Service revenue | $4,00,000.00 | ||
(To record services provided on credit) | |||
b | Bad debts Expense Dr | $4,000.00 | |
To Allowance for doubtful accounts | $4,000.00 | ||
(To record bad debts expense) | |||
c | Cash Dr | $20,000.00 | |
To Accounts receivables | $20,000.00 | ||
(To record collection of receivables) | |||
d | Allowance for doubtful accounts Dr | $100.00 | |
To Accounts receivables | $100.00 | ||
(To write off receivables) | |||
e | Accounts receivables Dr | $30,000.00 | |
To Service revenue | $30,000.00 | ||
(To record services provided on credit) | |||
f | Bad debts Expense Dr | $300.00 | |
To Allowance for doubtful accounts | $300.00 | ||
(To record bad debts expense) | |||
g | Notes receivables Dr | $2,400.00 | |
To Cash | $2,400.00 | ||
(Loan given to employee against note) | |||
h1 | Accounts receivables Dr | $100.00 | |
To Allowance for doubtful accounts | $100.00 | ||
(To reinstate debtor account) | |||
h2 | Cash Dr | $100.00 | |
To Accounts receivables | $100.00 | ||
(To record collection from customer previously written off) | |||
i | Interest receivables Dr | $12.00 | |
To Interest revenue ($2400*6%*1/12) | $12.00 | ||
(To record interest revenue) | |||
j | Bad debts Expense Dr ($1,678-$1,200) | $478.00 | |
To Allowance for doubtful accounts | $478.00 | ||
(To record bad debts expense) |
2:
Web Wizard Inc. (Partial Balance Sheet) | ||
At March 31 | ||
Assets | Amount | |
Current Assets: | ||
Accounts receivables - Gross | $18,000.00 | |
Allowance for doubtful accounts | $1,678.00 | |
Accounts receivables, net of allowance | $16,322.00 | |
Note Receivables | $2,400.00 | |
Interest receivables | $12.00 |
3.
Web Wizard would report: | ||
Bad debts expense | before | Income from operations |
Interest revenue | after | Income from operations |