At the end of 2011 Starlight Company has accounts receivable of $950,000 and an

Question

At the end of 2011 Starlight Company has accounts receivable of $950,000 and an allowance for doubtful accounts of $74,000. On January 16, 2012, Starlight Company determined that its receivable from Moonbeam Company of $4,300 will not be collected, and management authorized its write-off.

Instructions

a. Prepare the journal entry for Starlight Company to write off the Moonbeam receivable






b. What is the net realizable value of Starlight Company's accounts receivable before the write-off of the Moonbeam receivable?

$________________________


c. What is the net realizable value of Starlight Company's accounts receivable after the write-off of the Moonbeam receivable?

$________________________


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The following information is available for Monopoly Company:
Allowance for doubtful accounts at December 31, 2011 $ 16,000
Credit sales during 2012 800,000

Accounts receivable deemed worthless and written off during 2012 18,000
As a result of a review and aging of accounts receivable in early January 2013, however, it has been determined that an allowance for doubtful accounts of $11,000 is needed at December 31, 2012. What amount should Monopoly record as "bad debt expense" for the year ended December 31, 2012?
a. $9,000
b. $11,000
c. $13,000
d. $27,000

Explanation / Answer

a. Debit Allowance for doubtful accounts for 4300 and Credit Accounts Receivable - Moonbeam Company for 4300. b. 950,000-74,000=876,000 c. 945,700-69,700=876,000 d. c, 13000 because: allowance account on 12/31/11 is 16,000 (credit balance). AR written off during 2012 is 18,000. (Debit allowance account 18000, credit AR 18000) This results in a debit balance of 2,000 for the allowance account. Since the allowance account should be a credit balance of 11,000, this is accomplished by making a journal entry to record 13,000 of bad debt expense (debit bad debt expense of 13,000 and credit allowance for doubtful accounts of 13,000)

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