Ryan Book Company sells its products to customer of credit basis. An adjusting e
ID: 2554677 • Letter: R
Question
Ryan Book Company sells its products to customer of credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company's fiscal year-end. The 2017 balance sheet disclosed the following:
Current Assets:
Receivables, net of allowance fo uncollectible accounts of $32,000 $442,000
During 2018, credit sales were $1,760,000, cash collections from customer $1,840,000, and $37,000 in accounts receivable were written off. In addition, $3,200 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following
Age Group Percentage of year end receivables in group Percentabe Uncollectible
0-60 65% 4%
61-90 10% 10%
91-120 20% 35%
over 120 days 5% 50%
1. Prepare summary journal entries to account for the 2018 write-offs and the collections of the receivables previously written off.
2. Prepare the year-end adjusting entry for bad debts according to each of the following situations:
a. Bad debt expense is estimated to be 3% of credit sales for the year
b. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable
c. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable.
3. For situations a-c in number 2. above. what would the net amount of accounts receivable reported in the 2018 balance sheet?
Explanation / Answer
Journal Entries Date Accounts title and explanations Debit $ Credit $ Req 1: Allowance for uncollectibles account Dr. 37000 Accounts receivable 37000 (for writ off) Accounts receivable Dr. 3200 Allowance for doubtful debt 3200 (for reinstate of previous write off) Cash Account dr. 3200 Accounts receivable 3200 (for cash received) Req 2-a Bad debts expense (1760,000*3%) 52800 Allowance for uncollectible accounts 52,800 Req 2-b: Bad debts expense Dr. 40700 Allowance for Uncollectible accounts 40700 Note: Balance in Accounts receivable: Beginning balance 474000 Add: Credit sales 1760000 Less: receipts -1840000 Less: Written off -37000 Ending balance of AR 357000 Allowance to be created ($357000*10%) 35700 Less: balance already in Allowance (32000-37000) 5000 Dr Bad debts expense for the year 40700 Req 2-c Bad debts expense Dr. 51767 Allowance for uncollectible accounts 51767 Nnote: Aging table Ageing Group % of AR Balance of AR Estimated Bad debts Allowance required 0-60 65% 232050 4% 9282 61-90 10% 35700 10% 3570 91-120 20% 71400 35% 24990 Over 120 days 5% 17850 50% 8925 357000 Allowance required 46767 Add: Dr balance 5000 Bad debts expense 51767 Req 3: Net Amount of Accounts receivable shown as per CASE-2-c above: Accounts receivable balance (Gross) 357000 Less: Allowance for Uncollectible Accounts -46767 Accounts receivable balance (Net) 310233
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