Question

Allowance method entries The following transactions were completed by Wild Trout Gallery during the current fiscal year ended December 31: Jan. 19. Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalized the receipt of $2,660 cash in full payment of Arlene's account. Apr. 3. Wrote off the $12,750 balance owed by Premier GS Co., which is bankrupt. July 16. Received 25% of the $22,000 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible. Nov. 23. Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $4,000 cash in full payment. Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $3,300; Fogle Co., $8,100; Lake Furniture, $11,400; Melinda Shryer, $1,200. Dec. 31. Based on an analysis of the $2,350,000 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 $50,000 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts.

2. a. Journalize the transactions. If an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the $2,350,000 balance in accounts receivable reflects the adjustments made during the year. Jan. 19 Jan. 19 Apr. 3 July 16 Nov. 23 Nov. 23 Dec. 31 Dec. 31 2.

b. Post each entry that affects the following T accounts and determine the new balances: Allowance for Doubtful Accounts Jan. 1 Balance Dec. 31 Adjusted Balance 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 1/2 of 1% of the sales of $15,800,000 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 (after all of the adjustments and the adjusting entry). $

Answer 1

2a.

Date	Account Titles	Debit	Credit
Jan. 19-reinstate	Accounts receivable-Arlene Gurley	2660
	Allowance for doubtful accounts		2660
Jan. 19-collection	Cash	2660
	Accounts receivable-Arlene Gurley		2660
Apr. 3	Allowance for doubtful accounts	12750
	Accounts receivable-Premier GS Co.		12750
Jul. 16	Cash (25% x $22000)	5500
	Allowance for doubtful accounts	16500
	Accounts receivable-Hayden Co.		22000
Nov. 23-reinstate	Accounts receivable-Harry Carr	4000
	Allowance for doubtful accounts		4000
Nov. 23-collection	Cash	4000
	Accounts receivable-Harry Carr		4000
Dec. 31-write-off	Allowance for doubtful accounts	24000
	Accounts receivable-Cavey Co.		3300
	Accounts receivable-Fogle Co.		8100
	Accounts receivable-Lake Furniture		11400
	Accounts receivable-Melinda Shryer		1200
Dec. 31-adjusting	Bad debt expense	56590
	Allowance for doubtful accounts		56590

1. & 2b.

Allowance for Doubtful Accounts
Apr. 3	12750	Jan. 1 Balance	50000
Jul. 16	16500	Jan. 19	2660
Dec. 31	24000	Nov. 23	4000
		Dec. 31 Balance	3410
		Dec. 31 Adjusting	56590
		Dec. 31 Adjusted Balance	60000
Bad Debt Expense
Dec. 31 Adjusting	56590

3. Expected net realizable value: $2,290,000

Accounts receivable	2350000
Less: Allowance for doubtful accounts	60000
Accounts receivable, net	2290000

4a. Bad debt expense: $79,000

1/2% x $15800000 = $79000

4b. Balance in allowance account: $82,410

$3410 + $79000 = $82410

4c. Expected net realizable value: $2,267,590

Accounts receivable	2350000
Less: Allowance for doubtful accounts	82410
Accounts receivable, net	2267590