Question

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

Feb. 8	Received 40% of the $18,200 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 $7,400 cash in full payment of Seth’s account.
Aug. 13	Wrote off the $6,465 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 $3,830 cash in full payment of the account.
Dec. 31	Wrote off the following accounts as uncollectible (compound entry): Newbauer Co., $7,190; Bonneville Co., $5,510; Crow Distributors, $9,410; Fiber Optics, $1,205.
Dec. 31	Based on an analysis of the $1,820,500 of accounts receivable, it was estimated that $36,410 will be uncollectible. Journalized the adjusting entry.

1.	Record the January 1 credit balance of $25,415 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 $18,350,000 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

1 & 2.
	Date	Account titles and explanation					Debit	Credit
	Feb 8.	Cash			(18200*40%)		7280
		Accounts receivable-Decoy Co.						7280
		(Received 40% of the balance owed by Decoy Co.)
		Allowance for doubtful accounts			(18200*60%)		10920
		Accounts receivable-Decoy Co.						10920
		(Balance 60% written off as uncollectible)
	May 27.	Accounts receivable-Seth Nelsen					7400
		Allowance for doubtful accounts						7400
		(Reinstated the account of Seth Nelsen)
		Cash					7400
		Accounts receivable-Seth Nelsen						7400
		(Cash received )
	Aug 13.	Allowance for doubtful accounts					6465
		Accounts receivable-Kat tracks Co.						6465
		(Wrote off the accounts )
	Oct 31.	Accounts receivable-Crawford Co.					3830
		Allowance for doubtful accounts						3830
		(Reinstated the account of Crawford Co.)
		Cash					3830
		Accounts receivable-Crawford Co.						3830
		(Cash received )
	Dec 31.	Allowance for doubtful accounts					23315
		Accounts receivable-Newbauer Co.						7190
		Accounts receivable-Bonneville Co.						5510
		Accounts receivable-Crow distributors						9410
		Accounts receivable-Fiber optics						1205
		(Wrote off the accounts as uncollectible)
	Dec 31.	Bad debt expense				(Note:1)	40465
		Allowance for doubtful accounts						40465
		(Allowance provided)
	Note:1
	Desired allowance for doubtful accounts balance at Dec 31=$ 36410
	Current balance in allowance for doubtful accounts:
						$	$
	Beg. Bal. (Credit)						25415
	Add:
	May. 27	(Reinstated the account of Seth nelson)				7400
	Oct 31.	(Reinstated the account of Crawford Co.)				3830	11230
							36645
	Less:
	Feb 8.	Wrote off the accounts of Decoy Co.				10920
	Aug 13.	Wrote off the accounts of Kat tracks Co.				6465
	Dec 31.	Wrote off various accounts				23315	40700
	End. Bal. (before adjustment)-debit balance						-4055
	Bad debt expense to be recognized=36410+4055=$ 40465

VI Allowance for doubtful accounts Date Debit Credit Date Feb 8. 10920 25415 Bal. Aug 13. 6465 7400 May. 27 Dec 31. 23315 3830 Oct 31. 40465 Dec 31. 40700 77110 36410 Bal. Bad debt expense Debit Credit Date Date Dec 31. 40465 40465 0 Bal. 40465 3 Expected net realizable value=Accounts receivable as on Dec 31-Allowance for doubtful accounts as on Dec 31=1820500-36410=$ 1784090 4 a. Bad debt expense=1/4* sales*1%)=1/4*(18350000*1%)=1/4*183500=$ 45875 b. Balance in the allownace account=Unadjusted balance+Bad debt expensez-4055+44400=$ 40345 C. Expected net realizable value=Accounts receivable as on Dec 31-Allowance for doubtful accounts as on Dec 31=1820500-40345=$ 1780155