Question

Cowen’s, a large department store located in a metropolitan area, has been experiencing difficulty in estimating its bad debts. The company has decided to prepare an aging schedule for its outstanding accounts receivable and estimate bad debts by the due dates of its receivables. This analysis discloses the following information:

Balance	Age of Receivable	Estimated Percentage Uncollectible
$191,000	Under 30 days	0.8%
118,000	30-60 days	2.0%
73,000	61-120 days	5.0%
41,000	121-240 days	20.0%
25,000	241-360 days	35.0%
19,000	Over 360 days	60.0%
$467,000

	Required:
1.	Use the preceding analysis to compute the estimated amount of uncollectible receivables.
2.	What is the net realizable value of Cowen’s accounts receivable?
3.	Prepare the journal entry to record Cowen’s estimated uncollectibles, assuming the balance in Allowance for Doubtful Accounts prior to adjustment is: A. 0 B. $3,000 (debit) C. $2,500 (credit)

CHART OF ACCOUNTSCowen’sGeneral Ledger

	ASSETS
111	Cash
121	Accounts Receivable
122	Allowance for Doubtful Accounts
141	Inventory
152	Prepaid Insurance
181	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Balance	Age of Receivable	Estimated Percentage Uncollectible
$191,000	Under 30 days	0.8%
118,000	30-60 days	2.0%
73,000	61-120 days	5.0%
41,000	121-240 days	20.0%
25,000	241-360 days	35.0%
19,000	Over 360 days	60.0%
$467,000

	Required:
1.	Use the preceding analysis to compute the estimated amount of uncollectible receivables.
2.	What is the net realizable value of Cowen’s accounts receivable?
3.	Prepare the journal entry to record Cowen’s estimated uncollectibles, assuming the balance in Allowance for Doubtful Accounts prior to adjustment is: A. 0 B. $3,000 (debit) C. $2,500 (credit)

X

Chart of Accounts

CHART OF ACCOUNTS
Cowen’s
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 141 Inventory 152 Prepaid Insurance 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

X

Analysis

1. Use the Aging analysis to compute the estimated amount of uncollectible receivables.

The estimated amount uncollectible based on the data provided is .

2. What is the net realizable value of Cowen’s accounts receivable?

Net realizable value of accounts receivable .

3a. Prepare the journal entry on June 30 to record Cowen’s estimated uncollectibles, assuming the balance in Allowance for Doubtful Accounts prior to adjustment is $0.

3b. Prepare the journal entry on June 30 to record Cowen’s estimated uncollectibles, assuming the balance in Allowance for Doubtful Accounts prior to adjustment is a $3,000 debit.

3c. Prepare the journal entry on June 30 to record Cowen’s estimated uncollectibles, assuming the balance in Allowance for Doubtful Accounts prior to adjustment is a $2,500 credit.

Answer 1

	Answer:
	1)
	Age of Receivable	Balance	Estimated Percentage Uncollectible	Estimated Amount Uncollectible
	Under 30 days	1,91,000	0.80%	1528
	30-60 days	1,18,000	2.00%	2360
	61-120 days	73,000	5.00%	3650
	121-240 days	41,000	20.00%	8200
	241-360 days	25,000	35.00%	8750
	Over 360 days	19,000	60.00%	11400
	Total	$ 467,000		$ 35,888
	Estimated amount uncollectible =	$ 35,888
	2)
	Net realizable value of Cowen’s accounts receivable            = Bal. of Accounts Receivable (-) Est. uncollectible            =   $ 467,000 (-) $ 35,888	$ 431,112
3)
Date	Account Titles and Explanation	Debit	Credit
Jun-30	Bad Debt Expense	$ 35,888
	Allowance for Doubtful Accounts		$ 35,888
	(To record the adjustment for Bad debt expense )
Jun-30	Bad Debt Expense ( $ 35,888 + $ 3,000 )	$ 38,888
	Allowance for Doubtful Accounts		$ 38,888
	(To record the adjustment for Bad debt expense )
Jun-30	Bad Debt Expense ( $ 35,888 (-) $ 2,500 )	$ 33,388
	Allowance for Doubtful Accounts		$ 33,388
	(To record the adjustment for Bad debt expense )