Question

Analyzing and Reporting Receivable Transactions and Uncollectible Accounts Using Percentage- of-Sales Method to Estimate Bad Debt Expense

At the beginning of the year, Penman Company had the following account balances.

Accounts receivable...................... $356,000

Allowance for uncollectible accounts......... 21,400

During the year, Penman’s credit sales were $2,008,000, and collections on accounts receivable were $1,963,000. The following additional transactions occurred during the year.

Feb. 17 Wrote off Bava’s account, $8,200.

May 28 Wrote off Reed’s account, $4,800.

Dec. 15 Wrote off Fischer’s account, $2,300.

Dec. 31 Recorded the bad debts expense assuming Penman’s policy is to record bad debts expense as 0.9% of credit sales. (Hint: The allowance account is increased by 0.9% of credit sales

regardless of write-offs.)

Compute the ending balances in accounts receivable and the allowance for uncollectible accounts. Show how Penman’s December 31 balance sheet reports the two accounts

Answer 1

Solution:

Computation of Ending balance in accounts receivables
Particulars	Amount
Beginning Accounts Receivables	$356,000.00
Add: credit Sales	$2,008,000.00
Less: Collection from customers	$1,963,000.00
Less: Customer balance written off ($8,200 + $4,800 + $2,300)	$15,300.00
Ending Balance in Accounts receivables	$385,700.00

Computation of Ending balance in allowance for uncollectible accounts - Penman Company
Particulars	Amount
Beginning balance in Allowance for uncollectible accounts	$21,400.00
Add: Bad debts expense for the year ($2,008,000*0.90%)	$18,072.00
Less: Write off receivables	$15,300.00
Ending Balance in Allowance for uncollectible accounts	$24,172.00

Penman Company
Balance Sheet (Partial)
Assets		Amount
Accounts receivables (Gross)	$385,700.00
Less: Allowance for uncollectible accounts	$24,172.00
Accounts receivables (Net)		$361,528.00