41. Central Freight appropriately uses the allowance method when accounting for

Question

41. Central Freight appropriately uses the allowance method when accounting for uncollectible accounts. They base their estimate on a % of credit sales. Selected numbers from Central Freight's December 31, 2008 financial statements, included: credit sales of s515,000, accounts receivable of $120,000 and an allowance for doubtful accounts of $15,300. During 2009, Central recorded credit sales totaling $575,000, customer collections totaling $560,000 and write-offs of customer accounts receivables totaling $17,000. While making their adjusting entries for 2009, Central used a percentage of 3% to estimate their bad debts for the current year. Given the above information, what is Central Freight's Accounts Receivable balance at 12/31/2009? A. $88,000 B. $118,000 C. $122,000 D. $152,000 E. None of the above

Explanation / Answer

41) Net Account Receivable = Gross Account Receivable – Balance in Allowance for Doubtful Debt

Gross Account Receivable:

Account Receivable reported in 2008 = $120,000
Credit Sales in 2009 = $575,000
Collection against Account Receivable = $560,000
Write-offs = $17,000

Gross Account Receivable = $120,000 + $575,000 - $560,000 - $17,000 = $118,000

Balance in Allowance for Doubtful Debt:

Allowance for doubtful debt in 2008 = $15,300
Allowance for doubtful debt in 2009 = $575,000 x 3% = $17,250
Write-offs = $17,000

Balance in allowance for doubtful debt = $15,300 + $17,250 - $17,000 = $15,550

Net Account Receivable to be reported on 12/31/2009 = $118,000 - $15,550 = $102,450

So, Option E (None of the above) is correct.

42) Bad Debt Expense = $575,000 x 3% = $17,250

So, Option C is correct.

43) Since Roscoe has paid the amount already, there must be a journal entry that realizes cash received against the account receivable. So, the correct entry would be debit the cash for $1,000 and credit the bad debt expense for the same amount.

Hence, Option B is correct.

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