Question

The following information is extracted from Shelton Corporation’s accounting records at the beginning of 2016:

Accounts Receivable	$64,000
Allowance for Doubtful Accounts	1,300	(credit)

During 2016, sales on credit amounted to $574,000, $551,800 was collected on outstanding receivables and $3,200 of receivables were written off as uncollectible. On December 31, 2016, Shelton estimates its bad debts to be 4% of the outstanding gross accounts receivable balance.

	Required:
1.	Prepare the journal entry necessary to record Shelton’s estimate of bad debt expense for 2016.
2.	Prepare the Accounts Receivable section of Shelton’s December 31, 2016, balance sheet.
3.	Compute Shelton’s receivables turnover. (Round to one decimal place.)
4.	If Sheldon uses IFRS, what might be the heading for the accounts receivable section in Requirement 2?

Answer 1

(1).

Date	Accounts Title & Explanation	Debit	Credit
2016	Bad debt expense	$5220
	Allowance for doubtful accounts		$5220
	(For recording estimated bad debts)

Working Note;

Accounts receivable beginning balance	$64000
Add: Credit sales	$574000
Less: Collection from receivables	($551800)
Less: Written off as uncollectible	($3200)
Accounts receivable ending balance	$83000
Estimated bad debts (4%)	$3320

Bad debts recognized for year will be as follow;

($3200 + $3320 – $1300) = $5220

(2).

Shelton’s December 31, 2016, balance sheet.
(Accounts Receivable section)
Accounts receivable	$83000
Less: Allowance for doubtful accounts	($3320)
Net accounts receivable	$79680

(3).

Receivable turnover = (Sales / Average accounts receivable)

Sales = $574000

Average accounts receivable ($64000 + $83000 - $1300 - $3320) / 2 = $71190

Now let’s put values in the formula;

Receivable turnover ($574000 / $71190) = 8.06

(4).

Answer is Current Assets

Explanation;

If Sheldon uses IFRS, then the heading for the accounts receivable section will be Current Assets.