The following was taken from the records of Smith Company in the year ending Dec

Question

The following was taken from the records of Smith Company in the year ending December 31, 2014. Journalize the following transactions in an Excel spreadsheet for year-end 2014 using the aging method. Assume that the allowance for doubtful accounts has a beginning credit balance of $18,000 on January 1, 2014.

Label the events below as journal entries #1 to #4, along with the dates of the entries:

February 20, 2014: Wrote off Jones account: $7,250.

May 20, 2014: Received $4,050 as partial payment on the $8,000 account receivable due from Garcia.

August 10, 2014: Received $7,250 from Jones on the account written off on February 20, 2014.

September 15: Wrote off the individual account receivables for the following customers as payment not expected in future: Tang: $4,400; Mulaka: $2,210; Quan: $1,375.

December 31, 2014: Smith Company prepared the following aging schedule for it accounts receivables:

$160,000 of Accounts Receivable (A/R) are 0-30 days late: 3% probability of not being paid.

$40,000 of A/R are 31-60 days late: 10% probability of not being paid.

$18,000 of A/R are 61-90 days late: 20% probability of not being paid.

$1,500 of A/R are later than 90 days late: 50% probability of not being paid.

Explanation / Answer

         1,375

Account Nature Debit Credit #1 Feb 20 Provision for bad debt Asset          7,250 Debtors (Jones) Asset          7,250 #2 May 20 Cash Asset          4,050 Debtors (Garcia) Asset          4,050 #3 Aug 10 Cash Asset          7,250 Debtors (Jones) Asset          7,250 Debtors (Jones) Asset          7,250 Bad Debts Expense          7,250 #4 Sep 15 Provision for bad debt Asset          7,985 Debtors (Tang) Asset          4,400 Debtors (Mulaka) Asset          2,210 Debtors (Quan) Asset

         1,375

Provision to be created at end of the year Aging Value Probability of no collections Provision A B (A*B) 0-30    160,000 3%            4,800 31-60      40,000 10%            4,000 61-90      18,000 20%            3,600 >90         1,500 50%                750          13,150 Opening provision ©          18,000 Writen off during the year (D)          15,235 Balance (c-d)            2,765 Provision should be (E)          13,150 TO be created (E-(c-d))          10,385

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