Question

In: Accounting

On Dec 31, 2016, Rawda Company had accounts receivable of $750,000 and allowance for doubtful accounts...

On Dec 31, 2016, Rawda Company had accounts receivable of $750,000 and allowance for doubtful accounts that had a debit balance of $10,000. The company uses an aging schedule (aging method) to estimate its uncollectible accounts as shown in the following table:

# of Days Outstanding	Amounts	Estimated % Uncollectible
0-30	$ 200,000	2%
31-60	200,000	4%
61-90	200,000	6%
Over 90	150,000	8%

Requirements:

What is the required balance for the allowance of doubtful accounts on Dec 31, 2016?

What is the net realizable value of the accounts receivable on Dec 31, 2016?

If on May 1, 2017, one of the company’s customer that owed the company $21,000 filed bankruptcy, what is the balance of the allowance for doubtful accounts on May 1, 2017?

If On July 31, 2017, the customer that filed a bankruptcy on May 1, 2017 came back and paid Radwda $15,000, what is the balance of the allowance for doubtful accounts on July 31, 2017?

Expert Solution

a) The required balance for the allowance of doubtful accounts on Dec 31, 2016.

Days Outstanding	Amounts	Estimated % Uncollectible	Allowance of doubtful
0-30	$ 2,00,000	2%	$ 4,000
31-60	$ 2,00,000	4%	$ 8,000
61-90	$ 2,00,000	6%	$ 12,000
Over 90	$ 1,50,000	8%	$ 12,000
		Total	$ 36,000

*Allowance of doubtful account is amount multiplied by the estimated uncollectible rate.

The total allowance of doubtful accounts is $ 36,000.

Allowance for doubtful accounts journal entry

Allowance for Doubtful A/C Dr $ 36,000

To Accounts Receivable A/C $ 36,000

Note: The company uses an aging schedule (aging method) to estimate its uncollectible accounts

b) The net realizable value of the accounts receivable on Dec 31, 2016.

Given that

Allowance for doubtful accounts that had a debit balance of $10,000

Allowance for doubtful is $ 36,000

Net realizable value is Allowance for doubtful less Allowance for doubtful accounts that had a debit balance

= $ 36,000- $ 10,000 = $ 20,000

The net realizable value of the accounts receivable is $ 20,000.

C) If on May 1, 2017, one of the company’s customers that owed the company $21,000 filed bankruptcy, what is the balance of the allowance for doubtful accounts on May 1, 2017.

Company's customer that owed the company $ 21,000 filed bankruptcy.

Allowance of doubtful accounts on Dec 31, 2016, is $36,000.

The balance of the allowance for doubtful accounts on May 1, 2017, is the Allowance of doubtful accounts on Dec 31, 2016, $36,000 less filed bankruptcy $21,000 is $15,000.

d) If On July 31, 2017, the customer that filed bankruptcy on May 1, 2017, came back and paid Radwda $15,000, what is the balance of the allowance for doubtful accounts on July 31, 2017

Radwda paid on July 31, 2017, is $15,000

The balance of the allowance for doubtful accounts on July 31, 2017, is $15,000.

The balance of the allowance for doubtful accounts on July 31, 2017, is Radwda paid on July 31, 2017, $15,000 addition the balance of the allowance for doubtful accounts on July 31, 2017, $15,000 is 15,000+15,000 = $ 30,000

The balance of the allowance for doubtful accounts on July 31, 2017, is $ 30,000.

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