Question

Topic 3-2 Accounts Receivable Problem:

Receivables Forever Corp. started business on January 1, 20x3. The following information is provided about its sales during its first two years of operations.

[Hint: Companies can also use % of sales method to estimate bad-debt expense provision directly, instead of using aging schedule which estimate the ending allowance balance to back out bad-debt expense provision. For example, suppose the company estimate that 1% of the reported sales as bad-debt expense provision, then the ending balance would follow as beginning balance + bad-debt expense provision - write-offs.]

Year 20x3

During its first year of operations, 20x3, it had sales of $100,000. All sales were on credit. At the time that the sales were made, it was expected that 5% of the sales would be uncollectible. It collected $75,000 of the 20x3 sales during 20x3 and another $18,000 of the 20x3 sales during 20x4. It wrote off $3,000 of the 20x3 sales during 20x3 and $1,000 of the 20x3 sales during 20x4.

Year 20x4

During its second year of operations, 20x4, it had sales of $200,000. All sales were on credit. At the time that the sales were made, it was expected that 5% of the sales would be uncollectible. It collected $168,000 of the 20x4 sales during 20x4 and another $20,000 of the 20x4 sales during 20x5. It wrote off $8,000 of the 20x4 sales during 20x4.

20x4 year-end aging analysis

At year-end at 20x4, the company performed an aging analysis of existing accounts receivable calculation and found that the Allowance for Uncollectible Accounts account should have an ending balance of $6,000. It proceeded to make with the appropriate adjustment to Allowance and bad-debt expense accounts at the end of 20x4.

Questions:

1. Fill in the following account details for the Allowance for Uncollectible Accounts

	FY 2003	FY 2004
		Before aging analysis	After aging analysis
Opening Balance	$0	(Same as FY 2003 ending)	(Same as FY 2003 ending)
Add: Bad-debt expense provision for the year
Minus: Total write-off during the year			(Same as the cell to the left)
Ending balance

2. 
   Fill in following balance sheet and income statement presentation for respective year

Balance Sheet	20x3 Year END	20x4 Year END
		Before aging analysis	After aging analysis
Accounts Receivable
Minus: Allowance for Uncollectible Accounts
Net Accounts Receivable
Income Statements	FY 2003	FY 2004 before aging analysis	FY 2004
Bad Debt Expense
Other data	FY 2003	FY 2004
Total Cash collected from customers during the year

Answer 1

1.

• Bad debt provision for the year 1= credit sales in year1 * Percentage uncollectible= 100,000 * 0.05=5,000
• wrote off $3,000 of the 20x3 sales during 20x3
• Bad debt provision for the year 2= credit sales in year 2 * Percentage uncollectible=10,000
• wrote off $8,000 of the 20x4 sales during 20x4. 1000 of 2003 sales in year 2004; total 9,000
• After aging analysis ending balance should be 6,000;  It proceeded to make with the appropriate adjustment to Allowance and bad-debt expense accounts at the end of 20x4.

bad debt expense will become=ending balance + total write off during the year- opening balance= 6,000 +9,000- 2,000= 12,000

	2003	2004 before aging analysis	2004 after aging analysis
Opening balance	000	2,000	2,000
add:Bad dept provision for thre year	5,000	10,000	13,000
Minus; total write off during the year	(3000)	(9,000)	(9,000)
Ending balance	2000	3000	6,000

2.

Accounts recievables at 20#3 year end= credit sales- cash recieved - amount wrote off= 100,000 -75,000 -3,000=22,00

Accounts recievables at 20#4 year end before aging= begining balance in accounts recievables or 2003 ending balance + credit sales + cash recieved from 2003 sales in 2004 + cash recieved from 2004 sales in 2004- total amount wrote off in 2004= 22,000 + 200,000 -18,000- 168,000- 9,000=45,000

Accounts recievables at 20#4 year end after aging analysis= begining balance in accounts recievables or 2003 ending balance + credit sales + cash recieved from 2003 sales in 2004 + cash recieved from 2004 sales in 2004- total amount wrote off in 2004= 22,000 + 200,000 -18,000- 168,000- 9,000=45,000

Balance sheet
	2003 year end	2004 year end	2004 after aging analysis
Accounts recievable	22,000	45,000	45,000
Minus: allowance for uncollectible accounts	2,000	3,000	6,000
Net accounts recievables	20,000	42,000	39,000

Income statement

Bad debt expense in year 2003 = credit sales * percentage of bad debt, 5%= 100,000 * 0.05= 5000

Bad debt expense in year 2004 before aging analysis = credit sales * percentage of bad debt, 5%= 200,000 * 0,05= 10,000

Bad debt expense in year 2004 after aging analysis= 13,000 ; see answer 1

Income statement
	2003	2004 before aging analysis	2004 after aging analysis
Bad debt expense	5,000	10,000	13,000

• Cash collected in 2003= cash collected from 2003 sales= 75,000
• Cash collected in 2004= cash collected from 2003 sales in 2004 + cash collected from 2004 sales in 2004= 18,000 + 168,000=186,000