Brief Exercise 8-3 At the end of 2016, Waterway Industries has accounts receivab

Question

Brief Exercise 8-3

At the end of 2016, Waterway Industries has accounts receivable of $727,400 and an allowance for doubtful accounts of $27,280. On January 24, 2017, it is learned that the company’s receivable from Madonna Inc. is not collectible and therefore management authorizes a write-off of $4,480.

(a) Prepare the journal entry to record the write-off. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

(b) What is the cash realizable value of the accounts receivable before the write-off and after the write-off?

Before Write-Off

After Write-Off

Account Titles and Explanation

Debit

Credit

Explanation / Answer

(a) Journal entry to record the write-off

Allowance for doubtful accounts                   Dr        $ 4,480

            To Accounts Receivable A/c              Cr                            $ 4,480

(b) Cash realizable value of the accounts receivable before the write-off and after the write-off

BEFORE THE WRITE-OFF = $ 727,400 - $ 27,280 = $ 7,00,120

AFTER THE WRITE-OFF = $ 727,400 - $ 27,280 = $ 7,00,120 ( The realizable value will be the same, Since Accounts Receivable and Allowance for Doubtful Accounts is decreased by the same amount )

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