During 2018, its first year of operations, Pave Construction provides services o

Question

During 2018, its first year of operations, Pave Construction provides services on account of $138,000. By the end of 2018, cash collections on these accounts total $99,000. Pave estimates that 20% of the uncollected accounts will be bad debts

Required:

1. Record the adjustment for uncollectible accounts on December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Calculate the net realizable value of accounts receivable.

Explanation / Answer

A company's estimation of bad debt expense for the period involves two general ledger accounts -- "bad debt," an expense account, and "allowance for doubtful accounts," a contra-asset account used to offset to the accounts receivable balance. The journal entry to estimate and record bad debt using either method will result in a debit to bad debt expense and a credit to allowance for doubtful accounts.Sales revenues of $138,000 are immediately matched with $7,800 of bad debts expense. The balance in the account Allowance for Doubtful Accounts is adjusted with total accounts receivable so that the balance sheet will report the correct net realizable value.

(39,000*.20)

1. Journal entires. Date General Journal Debit Credit December 31, 2018 Bad Debts expense $ 7,800 Allowance for Doubtful accounts $ 7,800

(39,000*.20)

2. Calculate the net realizable value of accounts receivable. Total amount of services provided $ 138,000 Less; cash collected $ 99,000 Total accounts receivable $ 39,000 Allowance for doubtful debts $ 7,800 (39000*0.2) Net realizable value $ 31,200

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