Question

RNE Manufacturing Company sells its products offering 30 days’ credit to its customers. During 2018, its first year of operations, the following events occurred:​

Sales on credit 2,400,000 Cash collections from credit customers 1,405,000 Accounts receivable, end of year $995,000 $30,000 of accounts were deemed uncollectible in 2018. The company anticipates that $48,000 worth of ARs will ultimately become uncollectible. Which of the following is not true regarding RNE’s 2018 financial statements? A. RNE reports bad debt expense of $48,000. B. RNE reports net Accounts Receivables of $947,000. C. RNE reports gross Accounts Receivables of $965,000. D. RNE reports Allowance for doubtful accounts of $48,000.

Answer 1

Correct answer--- (D) RNE reports Allowance for doubtful accounts of $48,000.

Journal entry to record allowance would have been

Bad debts Expense         Dr           $48,000

Allowance for doubtful accounts              Cr            $48,000

When allowance is recorded bad debts is transferred to income statement right away so Bad debts will be recorded for $48000 and 30000 receivables would be written off during the year which would make allowance for doubt account equal to $18,000 (48000-30000).

Entry for writing off Accounts receivables would be as follows.

Allowance for doubtful accounts              Dr           $30,000

                Accounts receivables                                     Cr            $30,000