Pebble Company began operations on November 1, Y1. Sales data for the first year
ID: 2486040 • Letter: P
Question
Pebble Company began operations on November 1, Y1. Sales data for the first years of operations were as follows:
Year
Total Credit Sales
Sales Returns & Allowances
Sales Discounts
Y1
$100,000
$1,000
$200
Y2
$1,000,000
$8,000
$600
Y3
$1,020,000
$9,000
$800
All sales to customers are made on account. Collections on the accounts receivable were:
Year
Cash Collections
Y1
$76,800
Y2
761,500
Y3
1,160,000
Some customers of Pebble Company have not paid their bills on time, and the company decided to write off those accounts receivable balances. A schedule of write-offs follow:
Customer Name
Date of the write off
Amount of the write-off
Devin Brunet
3-15-Y2
$500
Will Carter
6-15-Y2
$2,100
Paige Daneau
10-02-Y2
$3,400
T. Douillette
12-30-Y2
$5,100
Rene Dubois
1-05-Y3
$4,000
Teri O’Brien
1-20-Y3
$4,500
Sofia Pantazis
5-15-Y3
$2,000
R. Ribeiro
11-20-Y3
$3,500
In some cases, after the receivable was written off, the customer subsequently paid some or all of the balance that was due. These subsequent payments are not included in the cash receipts noted above. The following schedule shows these payments of delinquent accounts:
Customer Name
Original A/R
Dollar Amount
Date A/R Written Off
Date
Reinstated
Amount
Customer
Pledged to Pay
Date Cash Collected
Amount of Cash Collected
Devin Brunet
$500
3-15-Y2
9-15-Y2
$500
9-15-Y2
$500
Rene Dubois
$4,000
1-05-Y3
4-15-Y3
$4,000
8-15-Y3
$1,700
Sofia Pantazis
$2,000
5-15-Y3
9-18-Y3
$2,000
9-18-Y3
$1,000
PART A: Assume Pebble Company uses the income statement approach of recording bad debt. Bad debt allowance percentages are:
Year
Bad Debt Percentage
Y1
2.0%
Y2
2.5%
Y3
2.4%
REQUIRED:
Prepare all journal entries necessary to record the accruals, write-offs, write-off reversals and cash collected on write-off reversals for years Y1, Y2, and Y3.
Using the “T” account tool, demonstrate the activity in the Allowance for Doubtful Accounts account for the one year period ending December 31, Y3.
Show the calculation of the Net Realizable Value of the receivables at December 31, Y3.
Year
Total Credit Sales
Sales Returns & Allowances
Sales Discounts
Y1
$100,000
$1,000
$200
Y2
$1,000,000
$8,000
$600
Y3
$1,020,000
$9,000
$800
Explanation / Answer
Year Total Credit Sales Sales Returns & Allowances Sales Discounts Net Sales Cash Collections Balance before write off Wite off in the Year Reversal of write off Net AR Balance at Year end Bad debt % of net sales Bad debt Allowance Amt $ Balance Allowance a/c Y1 $100,000 $1,000 $200 98,800 76,800 22,000 - - 22,000 2.0% 1,976 1,976 Y2 ########## $8,000 $600 991,400 761,500 251,900 11,100 500 241,300 2.5% 24,785 16,161 Y3 ########## $9,000 $800 1,010,200 1,160,000 102,100 14,000 2,700 90,800 2.4% 24,245 29,106 Accounting Entires Y1 Account Title Dr $ Cr $ Allowance for Uncollectible accounts 1,976 Bad Debt Expense 1,976 Accounting Entires Y2 Allowance for Uncollectible accounts 24,785 Bad Debt Expense 24,785 ( allowance recording) Accounts Receivable 11,100 Allowance for Uncollectible accounts 11,100 ( write off Y2) Accounts Receivable 500 Allowance for Uncollectible accounts 500 ( reversal of write off) Cash 500 Accounts Receivable 500 ( cash collection from write off reversal) Accounting Entires Y3 Allowance for Uncollectible accounts 24,245 Bad Debt Expense 24,245 ( allowance recording) Accounts Receivable 14,000 Allowance for Uncollectible accounts 14,000 ( write off Y3) Accounts Receivable 2,700 Allowance for Uncollectible accounts 2,700 ( reversal of write off) Cash 2,700 Accounts Receivable 2,700 ( cash collection from write off reversal) Net Realizable Value Y3 Accounts Receivable Balance 90,800 Balance in Allowance for uncollectibel a/c (29,106) Net Realizable Value Y3 61,694
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