ACC 305 Lecture Notes - Lecture 59: Accounts Receivable
Get access
Related Documents
Related Questions
Jan. 19. | Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalize the receipt of $2,120 cash in full payment of ArleneĆ¢ĀĀs account. |
Apr. 3. | Wrote off the $12,150 balance owed by Premier GS Co., which is bankrupt. |
July 16. | Received 30% of the $21,800 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 $3,455 cash in full payment. |
Dec. 31. | Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $9,135 ; Fogle Co., $2,715 ; Lake Furniture, $ 6,975 ; Melinda Shryer, $1,970. |
Dec. 31. | Based on an analysis of the $1,074,100 of accounts receivable, it was estimated that $46,700 will be uncollectible. Journalize the adjusting entry. |
Required:
1. Record the January 1 credit balance of $44,500 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts.
2. a. Journalize the transactions. If an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the $1,074,100 balance in accounts receivable reflects the adjustments made during the year.
Jan. 19-reinstate | Accounts Receivable-Arlene Gurley | ||
Allowance for Doubtful Accounts | |||
Jan. 19-collection | Cash | ||
Accounts Receivable-Arlene Gurley | |||
Apr. 3 | Allowance for Doubtful Accounts | ||
Accounts Receivable-Premier GS Co. | |||
July 16 | Cash | ||
Allowance for Doubtful Accounts | |||
Accounts Receivable-Hayden Co. | |||
Nov. 23-reinstate | Accounts Receivable-Harry Carr | ||
Allowance for Doubtful Accounts | |||
Nov. 23-collection | Cash | ||
Accounts Receivable-Harry Carr | |||
Dec. 31-write-off | Allowance for Doubtful Accounts | ||
Accounts Receivable-Cavey Co. | |||
Accounts Receivable-Fogle Co. | |||
Accounts Receivable-Lake Furniture | |||
Accounts Payable-Melinda Shryer | |||
Dec. 31-adjusting | Bad Debt Expense | ||
Allowance for Doubtful Accounts |
Feedback
Set up T accounts.
Recall that under the allowance method, the entry to write off an account debits Allowance for Doubtful Accounts and credits Accounts Receivable.
In such cases where an account receivable that has been written off is later collected, the account is reinstated by an entry that reverses the write-off entry. Then record the receipt of cash as payment for the account.
The amount of bad debt expense is affected by the balance in the allowance account.
Learning Objective 4.
2. b. Post each entry that affects the following T accounts and determine the new balances:
Allowance for Doubtful Accounts | |||
---|---|---|---|
Apr. 3 | Jan. 1 Balance | ||
July 16 | Jan. 19 | ||
Dec. 31 | Nov. 23 | ||
Dec. 31 Unadjusted Balance | |||
Dec. 31 Adjusting Entry | |||
Dec. 31 Adjusted Balance |
Bad Debt Expense | |||
---|---|---|---|
Feedback
Set up T accounts.
Recall that under the allowance method, the entry to write off an account debits Allowance for Doubtful Accounts and credits Accounts Receivable.
In such cases where an account receivable that has been written off is later collected, the account is reinstated by an entry that reverses the write-off entry. Then record the receipt of cash as payment for the account.
The amount of bad debt expense is affected by the balance in the allowance account.
Learning Objective 4.
3. Determine the expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).
$
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 ĆĀ½ of 1% of the sales of $6,630,000 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 (after all of the adjustments and the adjusting entry).
$
Feedback
From the inception of operations to December 31, 2020, Metlock Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on analyses of customers with different risk characteristics. Bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account, and no year-end adjustments to the allowance account were made. Metlockās usual credit terms are net 30 days.
The balance in Allowance for Doubtful Accounts was $114,400 (Cr.) on January 1, 2020. In 2020, credit sales totaled $7,920,000, the provision for doubtful accounts was determined to be $158,400, $79,200 of bad debts were written off, and recoveries of accounts previously written off amounted to $13,200. Metlock installed a computer system in November 2020, and the aging of accounts receivable was prepared for the first time as of December 31, 2020. A summary of the aging is as follows.
Classification by Month of Sale | Balance in Each Category | Estimated % Uncollectible |
November - December 2020 | $950,400 | 2% |
July - October | $572,000 | 10% |
January - June | $369,600 | 25% |
Prior to 1/1/20 | $132,000 | 80% |
Ā | $2,024,000 | Ā |
Based on the review of the collectibility of the account balances in the āprior to 1/1/20ā aging category, additional receivables totaling $52,800 were written off as of December 31, 2020. The 80% uncollectible estimate applies to the remaining $79,200 in the category. Effective with the year ended December 31, 2020, Metlock adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.
Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2020. Show supporting computations in good form. (Hint: In computing the 12/31/20 allowance, subtract the $52,800 write-off.)