The following transactions were completed by The Wild Trout Gallery during the current fiscal year ended December 31:
Jan.
19. Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalized the receipt of $2,660 cash in full payment of Arlene’s account.
Apr.
3. Wrote off the $12,750 balance owed by Premier GS Co., which is bankrupt.July 16. Received 25% of the $22,000 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible.
Nov.
23. Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $4,000 cash in full payment.
Dec.
31. Wrote off the following accounts as uncollectible (one entry): Cavey Co., $3,300; Fogle Co., $8,100; Lake Furniture, $11,400; Melinda Shryer, $1,200.
31. Based on an analysis of the $2,350,000 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 $50,000 in a T account for Allowance for Doubtful Accounts.
2. Journalize the transactions. Post each entry that affects the following 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 $15,800,000 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.
Apr. 3 12,750 Jan. 1 Balance 50,000
July 16 16,500 19 2,660
Dec. 31 24,000 Nov. 23 4,000
Dec. 31 Adjusting Entry 56,590
3. $2,290,000 ($2,350,000 – $60,000)
4. a. $79,000 ($15,800,000 × 0.005)
b. $82,410 ($79,000 + $3,410)
c. $2,267,590 ($2,350,000 – $82,410)
2. Jan. 19 Accounts Receivable—Arlene Gurley 2,660
Allowance for Doubtful Accounts 2,660
19 Cash2,660
Accounts Receivable—Arlene Gurley 2,660
Apr. 3 Allowance for Doubtful Accounts 12,750
Accounts Receivable—Premier GS Co. 12,750
July 16 Cash5,500
Allowance for Doubtful Accounts 16,500
Accounts Receivable—Hayden Co. 22,000
Nov. 23 Accounts Receivable—Harry Carr 4,000
Allowance for Doubtful Accounts 4,000
23 Cash4,000
Accounts Receivable—Harry Carr 4,000
Dec. 31 Allowance for Doubtful Accounts 24,000
Accounts Receivable—Cavey Co. 3,300
Accounts Receivable—Fogle Co. 8,100
Accounts Receivable—Lake Furniture 11,400
Accounts Receivable—Melinda Shryer 1,200
31 Bad Debt Expense56,590
Allowance for Doubtful Accounts 56,590
Uncollectible accounts estimate
($60,000 – $3,410).