The following transactions were completed by Daws Company during the current fiscal year ended December 31:
Jan. 29. Received 35% of the $9,000 balance owed by Kovar Co., a bankrupt business, and wrote off the remainder as uncollectible.
Apr. 18. Reinstated the account of Spencer Clark, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,000 cash in full payment of Clark’s account.
Aug. 9. Wrote off the $11,850 balance owed by Iron Horse Co., which has no assets.
Nov. 7. Reinstated the account of Vinyl Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,000 cash in full payment of the account.
Dec.
31. Wrote off the following accounts as uncollectible (one entry): Beth Connelly Inc., $12,100; DeVine Co., $8,110; Moser Distributors, $21,950; Oceanic Optics, $10,000.
31. Based on an analysis of the $1,450,000 of accounts receivable, it was estimated that $60,000 will be uncollectible. Journalized the adjusting entry.
Instructions
1. Record the January 1 credit balance of $54,200 in a T account for Allowance for Doubtful Accounts.
2. Journalize the transactions. Post each entry that affects the following selected T accounts and determine the new balances:
Allowance for Doubtful Accounts
Bad Debt Expense
3. Determine the expected net realizable value of the accounts receivable as of December 31.
4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables the adjusting entry on December 31 had been based on an estimated expense of 1⁄2 of 1% of the sales of $13,200,000 for the year, determine the following:
a. Bad debt expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.
Answer:
1. and 2.
Jan. 29 5,850 Jan. 1 Balance 54,200
Aug. 9 11,850 Apr. 18 4,000
Dec. 31 52,160 Nov. 7 7,000
31 Unadjusted Balance 4,660 Dec. 31 Adjusting Entry 64,660
Dec. 31 Adjusting Entry 64,660
3. $1,390,000 ($1,450,000 – $60,000)
4. a. $66,000 ($13,200,000 × 0.0050)
b. $61,340 ($66,000 – $4,660)
c. $1,388,660 ($1,450,000 – $61,340)
2. Jan. 29 Cash3,150
Allowance for Doubtful Accounts 5,850
Accounts Receivable—Kovar Co. 9,000
Apr. 18 Accounts Receivable—Spencer Clark 4,000
Allowance for Doubtful Accounts 4,000
18 Cash4,000
Accounts Receivable—Spencer Clark 4,000
Aug. 9 Allowance for Doubtful Accounts 11,850
Accounts Receivable—Iron Horse Co. 11,850
Nov. 7 Accounts Receivable—Vinyl Co. 7,000
Allowance for Doubtful Accounts 7,000
7 Cash7,000
Accounts Receivable—Vinyl Co.7,000
Dec. 31 Allowance for Doubtful Accounts 52,160
Accounts Receivable—Beth Connelly Inc. 12,100
Accounts Receivable—DeVine Co. 8,110
Accounts Receivable—Moser Distributors 21,950
Accounts Receivable—Oceanic Optics 10,000
31 Bad Debt Expense64,660
Allowance for Doubtful Accounts 64,660
Uncollectible accounts estimate
($60,000 + $4,660).