Question

At December 31, 2011, Mernt Co. reported the following information on its balance sheet.

Accounts receivable $960,000

Less: Allowance for doubtful accounts 80,000

Prepare journal entries related to bad debts expense.

During 2012, the company had the following transactions related to receivables.

1. Sales on account $3,200,000

2. Sales returns and allowances 50,000

3. Collections of accounts receivable 2,810,000

4. Write-offs of accounts receivable deemed uncollectible 90,000

5. Recovery of bad debts previously written off as uncollectible 24,000

Instructions;

(a) Prepare the journal entries to record each of these fi ve transactions. Assume that no cash discounts were taken on the collections of accounts receivable.

(b) Enter the January 1, 2012, balances in Accounts Receivable and Allowance for Doubtful Accounts, post the entries to the two accounts (use T accounts), and determine the balances.

(c) Prepare the journal entry to record bad debts expense for 2012, assuming that an aging of accounts receivable indicates that expected bad debts are $115,000.

(d) Compute the accounts receivable turnover ratio for 2012.

Answer 1

No	Account Titles and Explanations	Debit	Credit
1	Accounts Receivable	$3,200,000
	To Sales		$3,200,000
2	Sales Returns and Allowances	$50,000
	To Accounts Receivable		$50,000
3	Cash	$2,810,000
	Accounts Receivable		$2,810,000
4	Allowances for Doubtful Debts	$90,000
	Accounts receivable		$90,000
5	Accounts Receivable	$24,000
	Allowance for Doubtful Debts		$24,000
	Cash	$24,000
	Accounts Receivable		$24,000

 

Accounts Receivable
Bal	$960,000	2	$50,000
1	$3,200,000	3	$2,810,000
5	$24,000	4	$90,000
		5	$24,000
		Bal C/d	$1,210,000
	$4,184,000		$4,184,000

 

Accounts for Doubtful Accounts
4	$90,000	Bal	$80,000
Bal c/d	$14,000	5	$24,000
	$104,000		$104,000

Calculation of Bad Debt Expense:

 

Balance before Adjustment --------------------------- $ 14,000

Balance Needed ----------------------------------------- $ 115,000

 

Adjustment Required ----------------------------------- $ 101,000

 

Journal Entry would be:

Bad Debts Expense A/c Dr $ 101,000

To Allowance for Doubtful Debts $ 101,000

 

 

Net Receivables 2011 : $ 960,000 - $ 80,000 = $ 880,000

Net Receivables 2012 : $ 1,210,000 - $ 115,000 = $ 1,095,000

 

Average Net Receivables : ( 880,000 + 1,095,000 ) / 2 = $ 987,500

 

Accounts Receivable Turnover Ratio = Net Sales/Avg Net Receivable

= $ 3,200,000 / $ 987,500

= 3.24 times

All requirements have been answered.