Question

Problem 7-5

1. William Company’s balance sheet at the end of 2019 (beginning of 2020) reported Accounts Receivable of $314,200 and Allowance for Doubtful Accounts of $4,710 (credit balance).
2. The company’s total sales during 2020 were $3,340,000. Of these, $501,000 were cash sales the rest were credit sales.
3. The company also wrote off an account for $4,152.
4. By the end of the year, the company had collected $2,516,680 of the credit sales.

Requirements

1. Create T-accounts for Accounts Receivables and the Allowance for Doubtful Accounts. Post the information from Item 1.
2. Prepare journal entries for Items 2, 3, & 4.
3. Post the journal entries. Calculate William Company’s balances for Accounts Receivable and the Allowance for Doubtful Accounts at the end of 2020, before the adjusting entry is made.
   1. What is the net realizable value at this point?
4. For each of the following separate scenarios, prepare the adjusting entry for bad debt.
   1. Williams Company estimates that 0.3% of credit sales will be uncollectible.
   2. Based on an aging of receivable, Williams Company estimates that $9,500 of the accounts will be uncollectible.
   3. Instead of the write-off being for $4,152, as stated in Item 3, the write-off was $5,152. Recalculate the balances in the Allowance for Doubtful Accounts and Accounts Receivable. Based on an aging of receivable, Williams Company estimates that $9,500 of the accounts will be uncollectible.
5. Based on the journal entry for each of the 3 scenarios in d., calculate the net realizable value that will be reported on the Balance Sheet. Also provide the amount of Bad Debt Expense that will appear on the Income Statement in the Operating Expenses section.

Answer 1

a.

Accouts Receivable
Beg. Bal	$     314,200
Allowance for Doubtful Accounts
		$          4,710	Beg. Bal

b.

Account Titles	Debit	Credit
Cash	$         501,000
Accounts Receivable	$      2,839,000
Sales Revenue		$      3,340,000
Allowance for Doubtful Accounts	$             4,152
Accounts Receivable		$             4,152
Cash	$      2,516,680
Accounts Receivable		$      2,516,680

c.

Accouts Receivable
Beg. Bal	$     314,200
Sales	$ 2,839,000	$          4,152	Write off
		$ 2,516,680	Cash
End Bal	$     632,368
Allowance for Doubtful Accounts
		$          4,710	Beg. Bal
Write off	$          4,152
		$             558	End Bal

Net realizable value = $632368 - 558 = $631810

d.
1.

Account Titles	Debit	Credit
Bad Debt Expense	$             8,517
Allowance for Doubtful Accounts		$             8,517

2.

Account Titles	Debit	Credit
Bad Debt Expense	$             8,942
Allowance for Doubtful Accounts		$             8,942

3.
balance in allowance for doubtful accounts = $4710 - 5152 = $442 (Debit)
Balance in accounts receivable = $631368

Account Titles	Debit	Credit
Bad Debt Expense	$             9,942
Allowance for Doubtful Accounts		$             9,942

d.
1.
Net Realizable Value = $632368 - (8517+558) = $623,293
Bad Debt Expense = $8517

2.
Net Realizable Value = $632368 - 9500 = $628,868
Bad Debt Expense = $8942

3.
Net Realizable Value = $631368 - 9500 = $627,868
Bad Debt Expense = $9942