Question

The following transactions were completed by Daws Company during the current fiscal year ended December 31:

Jan. 29	Received 35% of the $9,000 balance owed by Kovar Co., a bankrupt business, and wrote off the remainder as uncollectible.
Apr. 18	Reinstated the account of Spencer Clark, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,000 cash in full payment of Clark’s account.
Aug. 9	Wrote off the $11,850 balance owed by Iron Horse Co., which has no assets.
Nov. 7	Reinstated the account of Vinyl Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,000 cash in full payment of the account.
Dec. 31	Wrote off the following accounts as uncollectible (one entry): Beth Connelly Inc., $12,100; DeVine Co., $8,110; Moser Distributors, $21,950; Oceanic Optics, $10,000.
Dec. 31	Based on an analysis of the $1,450,000 of accounts receivable, it was estimated that $60,000 will be uncollectible. Journalized the adjusting entry.

	Required:
1.	Record the January 1 credit balance of $54,200 in a T account for Allowance for Doubtful Accounts.
2.	A. Journalize the transactions. For the December 31 adjusting entry, assume the $1,450,000 balance in accounts receivable reflects the adjustments made during the year. Refer to the chart of accounts for a listing of the account titles the company uses. B. Post each entry that affects the following selected T accounts and determine the new balances: Allowance for Doubtful Accounts and 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 $13,200,000 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. 1. Record the January 1 credit balance of $54,200 in a T account for Allowance for Doubtful Accounts. 2. B. Post each entry that affects the following selected T accounts and determine the new balances: Allowance for Doubtful Accounts and Bad Debt Expense. Allowance for Doubtful Accounts Jan. 1 Balance Dec. 31 Adj. Balance Bad Debt Expense

Answer 1

1

Allowance for dobtful accounts

Particulars

Debit

Particulars

Credit

Balance

54200

2

A.

Date

Account titles and explanation

Debit

Credit

Jan 29.

Cash

(9000*35%)

3150

Allowance for doubtful accounts

5850

Accounts receivable-Kovar co.

9000

(Received 35% and balance written off)

Apr 18.

Accounts receivable-Spencer clark

4000

Allowance for doubtful accounts

4000

(Reinstated the account)

Cash

4000

Accounts receivable-Spencer clark

4000

(Cash received)

Aug 9.

Allowance for doubtful accounts

11850

Accounts receivable-Iron horse co.

11850

(Wrote off the balance)

Nov 7.

Accounts receivable-Vinyl co.

7000

Allowance for doubtful accounts

7000

(Reinstated the account)

Cash

7000

Accounts receivable-Vinyl co.

7000

(Cash received)

Dec 31.

Allowance for doubtful accounts

52160

Accounts receivable-Beth connelly Inc.

12100

Accounts receivable-Devine co.

8110

Accounts receivable-Moser distributors

21950

Accounts receivable-Oceanic optics

10000

(Accounts written off)

Bad debt expense

60000

Allowance for doubtful accounts

60000

(Adjusting entry for uncollectible accounts)

B.

Allowance for dobtful accounts

Particulars

Debit

Particulars

Credit

Accounts receivable-Kovar co.

5850

Balance

54200

Accounts receivable-Iron horse co.

11850

Accounts receivable-Spencer clark

4000

Accounts receivable-Beth connelly Inc.

12100

Accounts receivable-Vinyl co.

7000

Accounts receivable-Devine co.

8110

Accounts receivable-Moser distributors

21950

Accounts receivable-Oceanic optics

10000

69860

65200

Unadjusted balance

4660

Bad debt expense

60000

Balance

(60000-4660)

55340

Baddebt expenses

Particulars

Debit

Particulars

Credit

Allowance for dobtful accounts

60000

60000

0

Balance

60000

3

Expected net realizable value of accounts receivable=Accounts receivable as on Dec 31-Allowance for doubtful accounts as on Dec 31=1450000-55340=$ 1394660

4

A.

Baddebt expense=Sales*1%*1/2=13200000*1%*1/2=$ 66000

B.

Balance in allowance account=Baddebt expense-Unadjusted balance in allowance for doubtful accounts=66000-4660=$ 61340

C.

Expected net realizable value of accounts receivable=Accounts receivable as on Dec 31-Allowance for doubtful accounts as on Dec 31=1450000-61340=$ 14438660