4Effect of recovering a receivable previously written off LO 5-1, 5-2 The accoun

Question

4Effect of recovering a receivable previously written off LO 5-1, 5-2

The accounts receivable balance for Don’s Shoe Repair at December 31, 2014, was $87,000. Also on that date, the balance in Allowance for Doubtful Accounts was $3,000. During 2015, $2,300 of accounts receivable were written off as uncollectible. In addition, Don’s Shoe Repair unexpectedly collected $130 of receivables that had been written off in a previous accounting period. Sales on account during 2015 were $218,000, and cash collections from receivables were $220,000. Uncollectible accounts expense was estimated to be 1 percent of the sales on account for the period. Also on that date, the balance in Allowance for Doubtful Accounts was $3,000 and the balance in Retained Earnings was $84,000.

a   

Organize the information in accounts under an accounting equation. (Show effect on the accounting equation in the order provided in the question. Enter any decreases to account balances with a minus sign. Select "NA" if there is no effect on the "Accounts Titles for Retained Earnings".)

HORIZONTAL STATEMENTS MODEL

Cash + Accounts Receivable - Allowance = Liabilities + Equity or Retained Earning = Accounts title for   Retained Earning

Bal.

1.

2a

2b

3

4

5

b.

Based on the preceding information, compute (after year-end adjustment):

ALLOWANCE FROM DOUBTFUL ACCOUNTS ( )
ACCOUNTS RECEIVABLE ( )

NET REALIZED VALUE( )

What amount of uncollectible accounts expense will Don’s Shoe Repair report for 2015?

UNCOLLECTIBLE ACCONTS EXPENSE ( )

The accounts receivable balance for Don’s Shoe Repair at December 31, 2014, was $87,000. Also on that date, the balance in Allowance for Doubtful Accounts was $3,000. During 2015, $2,300 of accounts receivable were written off as uncollectible. In addition, Don’s Shoe Repair unexpectedly collected $130 of receivables that had been written off in a previous accounting period. Sales on account during 2015 were $218,000, and cash collections from receivables were $220,000. Uncollectible accounts expense was estimated to be 1 percent of the sales on account for the period. Also on that date, the balance in Allowance for Doubtful Accounts was $3,000 and the balance in Retained Earnings was $84,000.

Explanation / Answer

b) Balance of allowance for doubtfull accounts.= 3,000 - 2,300 + (1% X 218,000) = 2,880

Balance of Account receivable = 87,000 - 2,300 + 130 - 130 + 218,000 - 220,000 = 82,700

Net relizable value = 82,700 - 2,880 = 79,820

c) Uncollectible account expense = 2,180 ( 1% X 218,000)

a) Cash + accounts Receivable - Allowance = Liability + Equity or retained earning

+ 220,130 + 82,700 - 2,880 = Liability + NA

There is no effect on Accounts titled for Retained earning.

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