Normandale Brewing and Distilling Company’s post closing trial balance on Decemb
ID: 2387824 • Letter: N
Question
Normandale Brewing and Distilling Company’s post closing trial balance on December 31, 2009 (in other words, at the beginning of 2010) reflects the following balances:
Debit: Accounts receivable $300,000
Credit: Allowance for doubtful accounts $35,000
Sales for 2010 were $5,500,000. All sales were sales on account. At the end of each month during 2010, Bobby Bookkeeper posted a journal entry recording bad debt expense for an amount equal to .75% (three quarters of one percent) of monthly sales, using the percentage of sales method. During 2009 collections of accounts receivable were $4,300,000.
A) Provide a journal entry to summarize the 12 monthly journal entries posted by the Bobby Bookkeeper during 2010 to record bad debt expense.
B) Provide a journal entry to summarize the collections of accounts receivable during 2010.
C) What is the amount of accounts receivable on December 31, 2010 according to the
general ledger?
D) What is the amount of the allowance for doubtful accounts as of December 31, 2010?
On January 15, 2011, Andy Auditor arrives on the scene and asks to see an aging schedule of the accounts receivable as of December 31, 2010. Bobby Bookkeeper provides an aging schedule showing that:
10% of the receivables are older than 60 days,
20% of the receivables are between 31 and 61 days old, and
70% of the receivables were less than 30 days old.
Upon analysis of the $300,000 of accounts receivable, Andy sees:
Invoice # M45987 dated December 15, 2010 in the amount of $10,000, receivable
from Denny Hecker, who is in prison pending trial for his multi-million fraud. and
Invoice #C98785 dated March 2, 2010 in the amount of $20,000 receivable from
Trevor Cook who is in prison serving a 150 year term for fraud, Andy and Bobby
discuss these invoices and decide they should be written off as of December
31, 2010.
E) Provide the journal entry that Bobby will post to write off these accounts.
Andy and Bobby decide that of the remaining accounts receivable (after the write-offs taken in E above) 1% of the receivables that are not past due should be estimated as uncollectible, 5 % of the receivables that are past due but less than 61 days old should be estimated as uncollectible, and 50% of the receivables that are more than 60 days past due should be estimated as uncollectible
F) Prepare a revised aging schedule showing ages of the accounts receivable after the
write-offs. Be very careful with your dates. [Hint: Be sure to reflect the write-offs taken in E above, in the correct age category].
G) Provide the journal entry that Bobby will post to adjust bad debt expense and the
allowance for doubtful accounts as of December 31, 2010.
Explanation / Answer
A) Provide a journal entry to summarize the 12 monthly journal entries posted by the Bobby Bookkeeper during 2010 to record bad debt expense.
Bad debts $5,500,000 x 0.75% $41,250
Allowance for doubtful accounts $41,250
B) Provide a journal entry to summarize the collections of accounts receivable during 2010.
Cash $4,300,000
Accounst Receivables $4,300,000
C) What is the amount of accounts receivable on December 31, 2010 according to the
general ledger
Beginning Balance as on 01/01/2010 $300,000
Add : On account sales during 2010 $5,500,000
Less : Collections during -$4,300,000
Ending balance as on 31/12/2010 $1,500,000
D) What is the amount of the allowance for doubtful accounts as of December 31, 2010?
Beginning Balance as on 01/01/2010 $35,000
Add : Bad debts for 2010 $41,250
Ending Balance as on 31/12/2010 $76,250
E) Provide the journal entry that Bobby will post to write off these accounts.
Allowance for doubtful accounts $30,000
Denny Hecker $20,000
Trevor Cook $10,000
F) Prepare a revised aging schedule showing ages of the accounts receivable after the
write-offs. Be very careful with your dates.
Aging Schedule before written off
More than 60 days 31-61 days Less than 30 days
10% 150,000
20% 300,000
70% 1,050,000
Revised Aging Schedule
More than 60 days 31-61 days Less than 30 days
10% 130,000
20% 300,000
70% 1,040,000
Bad
debts 130,000x50% 300,000x10% 1,040,000x1%
$6,500 $30,00 $10,400
Total Bad debts $46,900
G) Provide the journal entry that Bobby will post to adjust bad debt expense and the
allowance for doubtful accounts as of December 31, 2010.
Bad Debt Expense ($46,900 - $41,250) $5,650
Allowance for doubtful accounts $5,650
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