Question

Ryan Book Company sells its products to customer of credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company's fiscal year-end. The 2017 balance sheet disclosed the following:

Current Assets:

Receivables, net of allowance fo uncollectible accounts of $32,000 $442,000

During 2018, credit sales were $1,760,000, cash collections from customer $1,840,000, and $37,000 in accounts receivable were written off. In addition, $3,200 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following

Age Group    Percentage of year end receivables in group    Percentabe Uncollectible

0-60                             65%                                4%

61-90                           10%                                10%

91-120                          20%                                35%

over 120 days               5%                                   50%

1. Prepare summary journal entries to account for the 2018 write-offs and the collections of the receivables previously written off.

2. Prepare the year-end adjusting entry for bad debts according to each of the following situations:

a. Bad debt expense is estimated to be 3% of credit sales for the year

b. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable

c. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable.

3. For situations a-c in number 2. above. what would the net amount of accounts receivable reported in the 2018 balance sheet?

Answer 1

Journal Entries
Date	Accounts title and explanations				Debit $	Credit $
Req 1:	Allowance for uncollectibles account Dr.				37000
	Accounts receivable					37000
	(for writ off)
	Accounts receivable Dr.				3200
	Allowance for doubtful debt					3200
	(for reinstate of previous write off)
	Cash Account dr.				3200
	Accounts receivable					3200
	(for cash received)
Req 2-a
	Bad debts expense (1760,000*3%)				52800
	Allowance for uncollectible accounts					52,800
Req 2-b:	Bad debts expense Dr.				40700
	Allowance for Uncollectible accounts					40700
	Note: Balance in Accounts receivable:
	Beginning balance			474000
	Add: Credit sales			1760000
	Less: receipts			-1840000
	Less: Written off			-37000
	Ending balance of AR			357000
	Allowance to be created ($357000*10%)					35700
	Less: balance already in Allowance (32000-37000)					5000	Dr
	Bad debts expense for the year					40700
Req 2-c	Bad debts expense Dr.				51767
	Allowance for uncollectible accounts					51767
	Nnote: Aging table
	Ageing Group		% of AR		Balance of AR		Estimated Bad debts		Allowance required
	0-60		65%		232050		4%		9282
	61-90		10%		35700		10%		3570
	91-120		20%		71400		35%		24990
	Over 120 days		5%		17850		50%		8925
					357000		Allowance required		46767
							Add: Dr balance		5000
							Bad debts expense		51767
Req 3:	Net Amount of Accounts receivable shown as per CASE-2-c above:
	Accounts receivable balance (Gross)				357000
	Less: Allowance for Uncollectible Accounts				-46767
	Accounts receivable balance (Net)				310233