Question

The following selected information is from Company A's Year 2 and Year 3 financial statements:

January 1, Year 2, accounts receivable	$20,000
Bad debt expense recognized in Year 2	1,480
Accounts receivable written off in Year 2	1,000
January 1, Year 2, allowance for uncollectible accounts	800
Credit sales in Year 2	95,000
Accounts receivable written off in Year 3	2,000
Credit sales in Year 3	100,000
Cash collected from customers in Year 3	85,000

The company uses the balance-sheet approach to calculate the allowance for uncollectible accounts. The company estimates that 4% of its gross accounts receivable will become uncollectible. During Years 2 and 3, no accounts previously written off became payable.

Complete Company A's balance sheet using the information above. Enter the appropriate amounts in the designated cells below. Enter all amounts as positive values. Round all amounts to the nearest dollar. If no entry is necessary, enter a zero (0).

Item	Amount
1. December 31, Year 2, allowance for uncollectible accounts
2. December 31, Year 2, accounts receivable
3. Cash collected from customers in Year 2
4. December 31, Year 3, accounts receivable
5. December 31, Year 3, allowance for uncollectible accounts
6. Bad debt expense recognized in Year 3

Answer 1

• All working forms part of the answer
• The Adjusted (ending balance) of Allowance for Uncollectible account each year will be 4% of adjusted ending balance of Accounts receivables.
• Working

Working			Accounts receivables	Allowances forUncollectible accounts	Bad Debt Expenses
Year 2	A [given]	Jan 1, Year 2	$               20,000.00	$                           800.00
	B [given]	Year 2, BD expense recognised		$                       1,480.00	$                          1,480.00
	C	Year 2, Accounts written off	$              (1,000.00)	$                     (1,000.00)
	D	Credit Sale Year 2	$               95,000.00
	E	Adjusted balances	$               32,000.00	$                       1,280.00	$                          1,480.00
	F = A + (-C) + D - E	Cash received during Year 2	$               82,000.00
Year 3	G	Credit Sales, Year 3	$             100,000.00
	G1	Accounts receivables written off	$               (2,000.00)	$                     (2,000.00)
	H	Cash Collected in Year 3	$             (85,000.00)
	I = E + G + (-G1) + (-H)	Ending (unadjusted balances)	$               45,000.00	$                         (720.00)	$                                       -
	J	Adjusted balances	$               45,000.00	$                       1,800.00
	K = J - I	Bad Debt Expense for Year 3		$                       2,520.00	$                          7,400.00

• All the answers

Item	Amount
1. December 31, Year 2, allowance for uncollectible accounts	$                        1,280.00
2. December 31, Year 2, accounts receivable	$                     32,000.00
3. Cash collected from customers in Year 2	$                     82,000.00
4. December 31, Year 3, accounts receivable	$                     45,000.00
5. December 31, Year 3, allowance for uncollectible accounts	$                        1,800.00
6. Bad debt expense recognized in Year 3	$                        2,520.00