Question

Caspar Company began 2018 with a balance of $10,000 in the allowance for doubtful accounts. All of Caspar’s sales are made on account and Caspar makes a quarterly provision for bad debts at the rate of 2% of sales. Quarterly sales in 2018 were as follows:

First quarter $200,000

Third quarter $500,000

Second quarter $300,000

Fourth quarter $400,000

Actual bad accounts written off in the current year were as follows:

First quarter $3,000

Third quarter $8,000

Second quarter $7,000

Fourth quarter $6,000

The foregoing data were accounted for properly by Caspar Company and are reflected in its Allowance for Doubtful Accounts as follows:

Allowance for Doubtful Accounts
	Dr	Cr	Balance
Balance, 1/1/18			10,000
Q1 expense (2% x $200,000)		4,000	14,000
Q1 write-offs	3,000		11,000
Q2 expense (2% x $300,000)		6,000	17,000
Q2 write-offs	7,000		10,000
Q3 expense (2% x $500,000)		10,000	20,000
Q3 write-offs	8,000		12,000
Q4 expense (2% x $400,000)		8,000	20,000
Q4 write-offs	6,000		14,000
FYE adjustment

Caspar ended 2018 with an accounts receivable balance of $850,000.  Caspar prepared an aging of accounts receivable at the end of 2018 for the purpose of preparing its fiscal year-end (FYE) adjustment to true up the allowance account.  The aging indicates that the total amount of receivables expected to be uncollectible is $18,000.

(1)        What FYE adjusting entry (in journal form) does Caspar need to make at December 31, 2018?

(2)        How much is Caspar’s doubtful accounts expense for 2018?

(3)  How much is the net realizable value of Caspar’s accounts receivables at December 31, 2018?

Answer 1

Answers:
1	Calculation of amount to be increased in Allowance for doubtful accounts
		Description	Amount
		Expected uncollectible as on 31st Dec 2018	18000
		Less: Balance in Allowance for doubtful accounts	14000
		Amount to be true up	4000
	Journal entry:
	Date	General Ledger	Debit	Credit
	12/31/2018	Bad debt	4000
		Allowance for doubtful accounts		4000
2	Calculation of doubtful accounts expenses for 2018
		Description	Amount
		Q1 Expenses (2% X $200,000)	4000
		Q2 Expenses (2% X $300,000)	6000
		Q3 Expenses (2% X $500,000)	10000
		Q4 Expenses (2% X $400,000)	8000
		True up posted on 31st Dec 2018	4000
		Doubtful accounts expenses for 2018	32000
3	Net realizable accounts receivable ar 31st Dec 2018
		Description	Amount
		Gross account receivable at 31st Dec 2018	850000
		Less: Expected uncollectible as on 31st Dec 2018	18000
		Net account receivable at 31st Dec 2018	832000