Question

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

Feb. 8	Received 35% of the $18,600 balance owed by DeCoy Co., a bankrupt business, and wrote off the remainder as uncollectible.
May 27	Reinstated the account of Seth Nelsen, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,445 cash in full payment of Seth’s account.
Aug. 13	Wrote off the $6,375 balance owed by Kat Tracks Co., which has no assets.
Oct. 31	Reinstated the account of Crawford Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,840 cash in full payment of the account.
Dec. 31	Wrote off the following accounts as uncollectible (compound entry): Newbauer Co., $7,240; Bonneville Co., $5,575; Crow Distributors, $9,355; Fiber Optics, $1,035.
Dec. 31	Based on an analysis of the $1,768,000 of accounts receivable, it was estimated that $35,360 will be uncollectible. Journalized the adjusting entry.

1.	Record the January 1 credit balance of $26,195 in a T-account for Allowance for Doubtful Accounts.
2.	A. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. 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 ¼ of 1% of the net sales of $18,380,000 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.

Answer 1

1.

Allowance for Doubtful Accounts
Feb 8	12,090	Beg. bal.	26,195
Aug 13	6,375	May 27	7,445
Dec 31	23,205	Oct 31	3,840
		Dec 31 ( Bad Debt Expense )	39,550
		End. bal.	35,360

2.

Date	Account Titles	Debit	Credit
		$	$
Feb 8	Cash	6,510
	Allowance for Doubtful Accounts	12,090
	Accounts Receivable: DeCoy Co.		18,600
May 27	Accounts Receivable : Seth Nelson	7,445
	Allowance for Doubtful Accounts		7,445
May 27	Cash	7,445
	Accounts Receivable: Seth Nelson		7,445
Aug 13	Allowance for Doubtful Accounts	6,375
	Accounts Receivable: Kat Tracks Co.		6,375
Oct 31	Accounts Receivable: Crawford Co.	3,840
	Allowance for Doubtful Accounts		3,840
Oct 31	Cash	3,840
	Accounts Receivable: Crawford Co.		3,840
Dec 31	Allowance for Doubtful Accounts	23,205
	Accounts Receivable: Newbauer Co.		7,240
	Accounts Receivable: Bonneville Co.		5,575
	Accounts Receivable: Crow Distributors		9,355
	Accounts Receivable: Fiber Optics		1,035
Dec 31	Bad Debt Expense	39,550
	Allowance for Doubtful Accounts		39,550

3. Expected net realizable value of Accounts Receivable as of December 31 : $ 1,768,000 - $ 35,360 = $ 1,732,640

4. A. Bad Debt Expense = $ 18,380,000 x 0.25 % = $ 45,950

B. Balance in allowance account : $ 41,760

C. Expected net realizable value of Accounts Receivable as of December 31 : $ 1,768,000 - $ 41,760 = $ 1,726,240