Question

A company reports the following amounts at 12/31/YR2 (before any year-end adjustment). Management estimates 8% of the receivables will not be collectible. The company uses the percent-of-receivables method to determine bad debt expense. Credit sales for the year 500,000 Accounts receivable (A/R) 35,000 Allowance for uncollectible accounts (“AUA”) 300 (credit) 1. How much of the Accounts Receivable does management not expect to collect? 2. What amount will the company record as bad debt expense for the year? 3. What amount will be shown on the 12/31 balance sheet for Net Accounts Receivable? 4. On January 5, YR3, the company writes off a $800 A/R they determined is uncollectible. After the write off, what is the balance in AUA? 5. After the write off, what is the Net Accounts Receivable?

Answer 1

1.

Credit sales = $500,000

Accounts receivable = $35,000

Allowance for uncollectible accounts = $300

Estimated uncollectibles = 8% of accounts receivables

= 35,000 x 8%

= $2,800

2.

Bad debt expense = Estimated uncollectbles - Existing Allowance for uncollectible accounts

= 2,800-300

= $2,500

3.

Net Accounts receivable = Accounts receivable - Estimated uncollectibles

= 35,000-2,800

= $32,200

4.

Accounts receivable written off = $800

Allowance for uncollectible accounts after write off = Estimated uncollectibles - Accounts receivable written off

= 2,800-8,00

= $2,000

5.

Net Accounts receivable after write off = Accounts receivable after write off- Allowance for uncollectible accounts after write off

= (35,000-800)-2,000

= 34,200-2,000

= $32,200

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