Question

Friedman enterprises had the following transactions during 2019.



AR= 175,000 on January 1



Cash collections throughout the year totaled 120,000



Estimated that 18% of its receivables would be uncollectable.

The allowance account had a debit balance of 1400 at 12/31/19.

Required:

1. Calculate the allowance account

2. Calculate the net realizable value

3. Journalize any adjusting entry

Answer 1

1.

Allowance account = Ending accounts receivable × Estimated rate of uncollectable

                                    = (175,000 – 120,000) × 18%

                                    = 55,000 × 18%

                                    = $9,900

2.

Net realizable value is the balance sheet figure of ending AR.

Net realizable value of AR = Beginning AR – Cash collection – Allowance account

                                                = 175,000 – 120,000 – 9,900

                                                = $45,100 (Answer)

3.

Since there is a debit balance in the allowance account, it should be added to get the bad debt expense, (9,900 + 1,400 =) $11,300

Journal

Date	Accounts titles and explanation	P.ref	Debit	Credit
12/31/19	Bad debt expense		$11,300
	Allowance for bad debt			$11,300
	To record the adjusting entry