Entries Related to Uncollectible Accounts The following transactions were comple

Question

Entries Related to Uncollectible Accounts

The following transactions were completed by The Spencer Gallery during the current fiscal year ended December 31:

Required:

1. Record the January 1 credit balance of $34,000 in a T account (below) for Allowance for Doubtful Accounts.

2. b. Post each entry that affects the following T accounts and determine the new balances:

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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 ½ of 1% of the net sales of $5,070,000 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).
$

Mar. 15. Reinstated the account of Brad Atwell, which had been written off in the preceding year as uncollectible. Journalized the receipt of $1,620 cash in full payment of Brad’s account. May 20. Wrote off the $9,280 balance owed by Glory Rigging Co., which is bankrupt. Aug. 13. Received 45% of the $16,700 balance owed by Coastal Co., a bankrupt business, and wrote off the remainder as uncollectible. Sept. 2. Reinstated the account of Lorie Kidd, which had been written off two years earlier as uncollectible. Recorded the receipt of $2,640 cash in full payment. Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Kimbro Co., $6,980; McHale Co., $2,075; Summit Furniture, $5,330; Wes Riggs, $1,505. Dec. 31. Based on an analysis of the $821,100 of accounts receivable, it was estimated that $35,700 will be uncollectible. Journalized the adjusting entry.

Explanation / Answer

Solution:

Net RealizableValue of Recivables at the end of the year: $821,100 - $53,000 = $768,100

4. Assumption of uncollectibles = $5070000 * 1% *0.5 = $25,350

Net realizable value = $821,100 - $42,650 = $778,450

Allowance for Doubtful debts Aug 13 Coastal Co.(45% recd) $16,700 Jan 1 Balance $34,000 Dec31 Bad Debts 35,700 Dec31 Adjusting Balance 53,000 69,700 69,700

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