Question

2. Marvin’s Magic Shop begins 2018 with Accounts Receivable Balance of $80,000.00 and Allowance for Uncollectible Accounts $4,000.00. During the year Sales were $500,000.00 all on account receivable. Cash Collections totaled $220,000.00. Two customers’ accounts totaling $3,000 was written off during the year. At 12/31/2018, Marvin determines that 8% of ending Accounts Receivable will not be paid due to the bad economy.

Answer the following questions:

Required: a. Record the all Journal Entries for the year for: i. Sales Transactions ii. Collections of Customer Accounts iii. Write-off Transactions

b. What is the Journal Entry to record Estimated Bad Debt Expense at Dec 31, 2018?

c. What is the ending balance in the Allowance for Uncollectible Accounts at Dec 31, 2018?

d. What is the Realizable value of Accounts Receivable at 12/31/18?

Answer 1

Solution a:

Journal Entries - Marvin's Magic Shop
Event	Particulars	Debit	Credit
i	Accounts receivables Dr	$500,000.00
	To Sales Revenue		$500,000.00
	(To record sales revenue)
ii	Cash Dr	$220,000.00
	To Accounts receivables		$220,000.00
	(To record collection from receivables)
iii	Allowance for doubtful accounts Dr	$3,000.00
	To Accounts receivables		$3,000.00
	(To write off receivables)

Solution b:

Ending accounts receivable balance = $80,000 + $500,000 - $220,000 - $3,000 = $357,000

Required balance in allowance for doubtful accounts = $357,000*8% = $28,560

Existing balance for allowance for doubtful accounts = $4,000 - $3,000 = $1,000

Bad debts expense to be recorded during the year = $28,560 - $1,000 = $27,560

Journal Entries - Marvin's Magic Shop
Event	Particulars	Debit	Credit
i	Bad debts expense Dr	$27,560.00
	To Allowance for doubtful accounts		$27,560.00
	(To record bad debts expense for the year)

Solution c:

Ending balance in the Allowance for Uncollectible Accounts at Dec 31, 2018 = $28,560

Solution d:

Realizable value of Accounts Receivable at 12/31/18 = $357,000 - $28,560 = $328,440