Question

Exercise 7-8A Accounting for uncollectible accounts: percent of receivables allowance method LO 7-2, 7-3

Vulcan Service Co. experienced the following transactions for Year 1, its first year of operations:

1. Provided $74,000 of services on account.
2. Collected $44,400 cash from accounts receivable.
3. Paid $30,000 of salaries expense for the year.
4. Adjusted the accounts using the following information from an accounts receivable aging schedule:

Number of Days Past Due	Amount			Percent Likely to Be Uncollectible	Allowance Balance
Current	$	21,904		.01
0-30		1,480		.05
31-60		2,072		.10
61-90		1,776		.30
Over 90 days		2,368		.50

Required
a. Record the above transactions in general journal form and post to T-accounts.
b. Prepare the income statement for Vulcan Service Co. for Year 1.
c. What is the net realizable value of the accounts receivable at December 31, Year 1?

Answer 1

Percentage of receivable method:
This method uses aging of accounts receivable.
It computes bad debt as a percentage of ending account receivable.Its an balance sheet approach.

x vulcan sexvice co. expeaiencect the following 1cnsa io ansction and Post 10 Taccounts batc Debi account dame 4000 Account Receivable 4000 TO seavice Revenue TO ecorc sevice on account 44G00 2.-kash 5 44 40 TO accouni Receivable CTO aecosel cash collection) salaaies xPense To ecord sal aay expense) UncaileCtible Accounts ExPense 221 E 30,000 TO Allo0wance fos Doybrful pebts O ae coad adjustment) s 2217 No.of Days l Amount! 이. likely to be Past pule on collectible lB)!! Balone (PKB) 2190 21904 1480 OS 30 50 203-2O 532.80 1184 31-60 61-90 oves g0 doyS 2368 2211.04

KII T-accounts cash Sesvice Revenue Ending $1440O $ 14000 End bo Salabie Expense ccount Receivable 구(10001-844400 Sal cash cash 5 30000 Ending to2600 ning tal 530000 Allowahce fer Doubtful nccounb Uncollectible Account expense-- 5221 oncollectisle AOcsane AC EXP o poubtf $221 pe6b 213 lend tal-End 6al |E2217

Income staement Nulcan sesvica co ncome statiment os the year fded sear servica Revenue S 14000 ess: opeagting ExPense $3000o Uncollectible Account ExPense 2211 $ 32 2/) 1383 OIGLOperatin9 exPense (c rtet Reall2able value l s 27383 5 2960o- 2213 21383