Question

1. Lucero, Inc. starts their 2nd year of operations with $15,000 in their allowance for doubtful accounts and $175,000 in their A/R account

• During the year:

•Lucero makes $200,000 in sales, and collects $185,000 from customers

•Lucero writes-off $12,000 in specific accounts receivable

•Additionally, a previously written-off customer pays an old bill of $2,000

•At year end, Lucero estimates that 4% of their A/R balance will prove uncollectible.

•Questions:

•A: Journalize all related year 2 transactions.

•B: What is the net realizable value (NRV) of A/R at the start of year 2?

•C: What is the NRV of A/R at the end of year 2, before any adjusting entries?

•D: What is the NRV of A/R at the end of year 2, after adjusting entries?

2. Lucero, Inc. starts their 2nd year of operations with $15,000 in their allowance for doubtful accounts and $175,000 in their A/R account

• During the year:

•Lucero makes $200,000 in sales, and collects $185,000 from customers

•Lucero writes-off $22,000 in specific accounts receivable

•Additionally, a previously written-off customer pays an old bill of $2,000

•At year end, Lucero estimates that 4% of their A/R balance will prove uncollectible.

•Questions:

•E: What was the necessary adjusting entry at the end of year 2?

•F: What is the NRV of A/R at the end of year 2, after adjusting entries?

3. Lucero, Inc. starts their 2nd year of operations with $15,000 in their allowance for doubtful accounts and $175,000 in their A/R account

• During the year:

•Lucero makes $202,000 in sales, and collects $185,000 from customers

•Lucero writes-off $12,000 in specific accounts receivable

•Additionally, a previously written-off customer pays an old bill of $2,000

•After adjusting entries, Lucero shows $19,800 in their allowance for doubtful accounts.

•Questions:

•G: What adjusting entry was made at the end of year 2?

•H: What was Lucero’s estimate % of uncollectible A/R?

4. Lucero, Inc. starts their 2nd year of operations with $175,000 in their R/E account, and $75,000 in A/R. They use the direct write-off method for bad debts

• During year 2:

•Lucero writes-off $20,000 in specific accounts receivable relating to year 1.

•Questions:

•I: Journalize the year 2 entry.

•J: What is the theoretical weakness to this method? (what is meant by it being a “bad match”?)

Answer 1

As per policy, only one question or its first four parts are allowed to answer at a time, but answering here two questions:

1)
Working papers:
	AR	Allow for DA
OB	175000	-15000
Sales	200000
Collection	-185000
Balance before Adj entries	190000	-15000
writes off	-12000	12000
reverse previous written-off	2000	-2000
colle. Of previous bill	-2000
Balance	178000	-5000
Estimated uncollectible		7120
Bad Debt		2120
answer to questions:
A) Journal entries:
Accounts Titles	Debit $	Credit $
Accounts Receivable	200000
Sales revenue		200000
(being credit sales of year 2 booked)
Cash	185000
Accounts Receivable		185000
(being collection of AR)
Allowance for Doubtful Acc.	12000
Accounts Receivable		12000
(uncollectable written off during year 2)
Accounts Receivable	2000
Allowance for Doubtful Acc.		2000
(being written off bill reversed)
Cash	2000
Accounts Receivable		2000
(previous bill collected)
Bad Debt expense	2120
Allowance for Doubtful Acc.		2120
(being maintenance of 4% allowance provision)
B) Net realizable value of A/R at the start of year 2: 175000 - 15000 = 160000
C) Net realizable value of A/R at the start of year 2, before adj entries: 190000 - 15000 = 175000
D) Net realizable value of A/R at the start of year 2, after adj entries: 178000 - 7120= 170880
2)
Working papers:
	AR	Allow for DA
OB	175000	-15000
Sales	200000
Collection	-185000
Balance before Adj entries	190000	-15000
writes off	-22000	22000
reverse previous written-off	2000	-2000
colle. Of previous bill	-2000
Balance	168000	5000
Estimated uncollectible		6720
Bad Debt		11720
answer to questions:
E) Necessary Journal entries at end of Year 2:
Accounts Titles	Debit $	Credit $
Allowance for Doubtful Acc.	15000
Bad Debts	7000
Accounts Receivable		22000
(uncollectable written off during year 2)
Accounts Receivable	2000
Allowance for Doubtful Acc.		2000
(being written off bill reversed)
Cash	2000
Accounts Receivable		2000
(previous bill collected)
Bad Debt expense	4720
Allowance for Doubtful Acc.		4720
(being maintenance of 4% allowance provision)
F) Net realizable value of A/R at the start of year 2, after adj entries: 168000 - 6720= 161280