Learning Objective 4: Apply GAAP to uncollectible receivables at December 31, 20

Question

Learning Objective 4: Apply GAAP to uncollectible receivables at December 31, 2016, before any year-end adjustments, the Accounts Receivable balance of Haley Travel, Inc., is $400,000. The Allowance for Doubtful Accounts has a $19,600 credit balance. Haley Travel prepares the following aging schedule for Accounts Receivable:

                                                                                                                                Age of Accounts

                Total Balance                                     1-30 Days            31-60 Days          61-90 Days          Over 90 Days

                $400,000                                              $180,000              $120,000              $80,000                      $20,000

                Estimated uncollectible                      0.5%      5.0% 11.0%                          50.0%

                Requirements:

1.            Based on the aging of Accounts Receivable, is the unadjusted balance of the allowance account adequate? Too high? Too low?

2.            Make the entry required by the aging schedule. Prepare a T-account for the allowance.

3.            Show how Haley Travel will report Accounts Receivable on its December 31 balance sheet

Solution: Req. 1 1-30 31-60 61-90 Over 90 Total days days days days balance Est. % uncollectible x    .005 x     .05 x     .11 x      .50 Bal. in Allow. for Doubtful Accounts should be $ 0 $ 0 $ 0 $ 0 $          - Current balance Amount needed in adj. entry Req. 2 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Dec. 31                 - Allowance for Doubtful Accounts Bal. Req. 3 BALANCE SHEET Current assets: Cash $        XX Short-term investments XX Accounts receivable, net of allowance for doubtful accounts of $ * Or *Another way to report accounts receivable is Accounts receivable Less: Allowance for doubtful accounts

Explanation / Answer

Solution:-

1. Based on the aging of Accounts Receivable, is the unadjusted balance of the allowance account adequate? Too high? Too low:-

2. Make the entry required by the aging schedule. Prepare a T-account for the allowance:-

3. Show how Haley Travel will report Accounts Receivable on its December 31 balance sheet:-

Please Rate or comment if you have any doubt regarding this solution.

1-30 days 30-60 days 60-90 days Over 90 days Total balance Accounts receivable 180,000 120,000 80,000 20,000 400,000 Est. % uncollectible * .005 * .05 * .11 * .50 Bal. in Allow. for Doubtful Accounts should be 900 6,000 8,800 10,000 25,700 Current balance 19,600 Amount needed in adj. entry 6,100

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