Question

Exercise 7-6A Effect of recovering a receivable previously written off LO 7-1

The accounts receivable balance for Renue Spa at December 31, Year 1, was $83,000. Also on that date, the balance in the Allowance for Doubtful Accounts was $2,600. During Year 2, $2,100 of accounts receivable were written off as uncollectible. In addition, Renue unexpectedly collected $150 of receivables that had been written off in a previous accounting period. Services provided on account during Year 2 were $215,000, and cash collections from receivables were $216,972. Uncollectible accounts expense was estimated to be 1 percent of the sales on account for the period.

Required:

b. Based on the preceding information, compute (after year-end adjustment):

1. (1) Balance of allowance for doubtful accounts at December 31, Year 2.
2. (2) Balance of accounts receivable at December 31, Year 2.
3. (3) Net realizable value of accounts receivable at December 31, Year 2.

What amount of uncollectible accounts expense will Renue report for Year 2?

Answer 1

Ques b
Allowance for diubtful accounts		2800
Accounts receivable		78928
Net realizable value		76128
(78928-2800)
Ques c
Uncollectible accounts expense		2150

No.	General Journal	Debit	Credit
1	Allowance for doubtful accounts	2100
	Accounts receivable		2100
2a	Accounts receivable	150
	Allowance for doubtful accounts		150
2b	Cash	150
	Accounts receivable		150
3	Accounts receivable	215000
	Service revenue		215000
4	Cash	216972
	Accounts receivable		216972
5	Uncollectible accounts expense	2150
	Allowance for doubtful accounts		2150
	(215000*1%)

Cash
beg bal
2b	150
4	216972
end bal	217122
Accounts receivable
beg bal	83000	2100	1
2a	150	150	2b
3	215000	216972	4
end bal	78928
Allowance for doubtful accounts
beg bal		2600
1	2100	150	2a
		2150	5
end bal		2800

Service revenue
beg bal
		215000	3
end bal		215000
Uncollectible Accounts expense
beg bal	0
5	2150
end bal	2150