Question

On December 31, 2015, a company reported the following information on its balance sheet:

Accounts receivable $838,000

Less: Allowance for Doubtful Accounts 46,000 (cr.)

During 2016, the company had the following transactions related to receivables:

Sales on account $3,000,000

Collections of accounts receivable 2,712,000

Write-offs of accounts determined to be uncollectible 31,500

Recovery of prior write-offs 6,600

a) Determine the ending accounts receivable balance on December 31, 2016.

b)If the company estimates 3% of credit sales will not be collected, the balance in the allowance for doubtful accounts (after adjustment) on December 31, 2016 would be

c)Now assume, if the company estimates 4% of receivables to be uncollected, the bad debt expense for 2016 would be

Answer 1

a) Solution: $1,094,500

Working:

Accounts receivable	838000
Sales on account	3,000,000
Collections of accounts receivable	-2,712,000
Write-offs of accounts determined to be uncollectible	-31,500
Ending accounts receivable balance	1,094,500

　

b) Solution: 111,100

Working:

Allowance for Doubtful Accounts	46,000
Uncollectible credit sales (3,000,000 * 3%)	90,000
Less: Write-offs of accounts determined to be uncollectible	-31,500
Add: Recovery of prior write-offs	6,600
Bal. in the allowance for doubtful accounts (after adjustment)	111,100

c) Solution: 22,680

Working:

Bad debts uncollectible (1,094,500 * 4%)	43,780
Allowance for Doubtful Accounts	-46,000
Recovery of prior write-offs	-6,600
Less: Write-offs of accounts determined to be uncollectible	31,500
Bal. in bad debt expense	22680