American Company uses the allowance method to account for collectible accounts.

Question

American Company uses the allowance method to account for collectible accounts. On January 1, The Allowance for Doubtful Accounts had a credit balance of $3,000. The balance in the Accounts Receivable account on that date was $75,000. On January 2, prior to any credit sales, a $500 account from National Company was deemed to be uncollectible and written off.
Required:

A. Compute the net realizable (A/R – Allowance for Doubtful account) value of American's receivables on January 1. _________________

B. Present the journal entry American would record on January 2 related to the write-off of National's account.


C. Compute the net realizable value of American's receivables on January 2, immediately following the write-off of National's account. _________

Explanation / Answer

A. 75,000 - 3,000 = 72,000 B. Debit Allowance for Doubtful Accounts $500 Credit Accounts Receivable - National Company $500 C. 74,500 - 2,500 = 72,000

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