Question

iscal year...

The following transactions were completed by Irvine Company during the current fiscal year ended December 31:

Feb. 8 Received 40% of the $18,500 balance owed by DeCoy Co., a bankrupt business, and wrote off the remainder as uncollectible.

May 27 Reinstated the account of Seth Nelsen, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,430 cash in full payment of Seth’s account.

Aug. 13 Wrote off the $6,470 balance owed by Kat Tracks Co., which has no assets.

Oct. 31 Reinstated the account of Crawford Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,870 cash in full payment of the account.

Dec. 31 Wrote off the following accounts as uncollectible (compound entry): Newbauer Co., $7,245; Bonneville Co., $5,595; Crow Distributors, $9,500; Fiber Optics, $1,060.

Dec. 31 Based on an analysis of the $1,769,500 of accounts receivable, it was estimated that $35,390 will be uncollectible. Journalized the adjusting entry.

1. Record the January 1 credit balance of $25,330 in a T-account for Allowance for Doubtful Accounts.

2.

A. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles.

B. Post each entry that affects the following selected T-accounts and determine the new balances: Allowance for Doubtful Accounts and Bad Debt Expense.

3. Determine the expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).

4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ¼ of 1% of the net sales of $18,430,000 for the year, determine the following:

A. Bad debt expense for the year.

B. Balance in the allowance account after the adjustment of December 31.

C. Expected net realizable value of the accounts receivable as of December 31.

Answer 1

Answer to 2 (a)
In the books of Irvine Company
General Journal
Date	Description	Debit	Credit
Feb-08	Cash	$           7,400
	Allowance for doubtful debts	$        11,100
	Accounts Receivable		$      18,500
	(being partial cash received and remaining balance written off)
May-27	Accounts Receivable	$           7,430
	Allowance for doubtful debts		$         7,430
	(being debtors written back)
	Cash	$           7,430
	Accounts Receivable		$         7,430
	(being cash received)
Aug-13	Allowance for doubtful debts	$           6,470
	Accounts Receivable		$         6,470
	(being debtors written off)
Oct-31	Accounts Receivable	$           3,870
	Allowance for doubtful debts		$         3,870
	(being debtors written back)
	Cash	$           3,870
	Accounts Receivable		$         3,870
	(being cash received)
Dec-31	Allowance for doubtful debts	$        23,400
	Accounts Receivable		$      23,400
	(being uncollectible written off)
Dec-31	Bad debts expense	$        35,390
	Allowance for doubtful debts		$      35,390
	(being provision kept)
Answer to 2 (b)
Allowance for doubtful debts
Date	Description	Amount (in $)	Date	Description	Amount (in $)
Feb-08	Accounts Receivable	11100	Jan-01	Opening balance	25330
Aug-13	Accounts Receivable	6470	May-27	Accounts Receivable	7430
Dec-31	Accounts Receivable	23400	Oct-31	Accounts Receivable	3870
			Dec-31	bad debts	35390
Dec-31	Closing balance	31050
		72020			72020
Accounts Receivable
Date	Description	Amount (in $)	Date	Description	Amount (in $)
	Opening balance	1769500	Feb-08	Cash	7400
May-27	Allowance for doubtful debts	7430		Allowance for doubtful debts	11100
Oct-31	Allowance for doubtful debts	3870	May-27	Cash	7430
			Aug-13	Allowance for doubtful debts	6470
			Dec-31	Allowance for doubtful debts	23400
			Oct-31	Cash	3870
			Dec-31	Closing balance	1721130
		1780800			1780800
Bad debts expense
Date	Description	Amount (in $)	Date	Description	Amount (in $)
Dec-31	Allowance for doubtful debts	35390
Answer to 3
Expected net realisable value of accounts receivable is $ 17,21,130- $ 31,050 i.e $16,90,080
Answer to 4 (a)
New bad debts expense will be 1/4 of 1% of $ 18,430,000 i.e $ 46,075
Answer to 4 (b)
Allowance for doubtful debts
Date	Description	Amount (in $)	Date	Description	Amount (in $)
Feb-08	Accounts Receivable	11100	Jan-01	Opening balance	25330
Aug-13	Accounts Receivable	6470	May-27	Accounts Receivable	7430
Dec-31	Accounts Receivable	23400	Oct-31	Accounts Receivable	3870
			Dec-31	bad debts	46075
Dec-31	Closing balance	41735
		82705			82705
Answer to 4 (c )
Expected net realisable value of accounts receivable is $ 17,21,130- $ 41,735 i.e $16,79,395