Question

The following transactions were completed by Daws Company during the current fiscal year ended December 31: 1. Record the January 1 credit balance of $25,615 in a Taccount for Allowance for Doubtful Accounts 2. B. Post each entry that affects the following selected T accounts and determine the new balances: Allowance for Doubtful Accounts and Bad Debt Expense Jan. 29 Apr. 18 Allowance for Doubtful Accounts Aug. 9 Nov. 7 Received 40% of the $17,000 balance owed by Kovar Co., a bankrupt business, and wrote off the remainder as uncollectible. Reinstated the account of Spencer Clark, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7.405 cash in full payment of Clark's account Wrote off the 56,460 balance owed by Iron Horse Co., which has no assets. Reinstated the account of Vinyl Co., which had been written off in the preceding year as uncollectible Journalized the receipt of $3.940 cash in full payment of the account. Wrote off the following accounts as uncollectible (one entry): Beth Connelly Inc., $7,095; DeVine Co., $5,540; Moser Distributors, S9,495: Oceanic Optics. $1.035. Based on an analysis of the $1,782,000 of accounts receivable, it was estimated that $35,840 will be uncollectible. Journalized the adjusting entry. Jan. 1 Balance Dec 31 Dec 31 Dec. 31 Adj. Balance Bad Debt Expense Required: 1. Record the January 1 credit balance of $25,615 in a T account for Allowance for Doubtful Accounts 2. A. Journalize the transactions. For the December 31 adjusting entry, assume the $1,782,000 balance in accounts receivable reflects the adjustments made during the year. Refer to the chart of accounts for a listing of the account titles the company uses 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 % of 1% of the sales of $17,760,000 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		Allowance for doubtful accounts
	Particulars			Debit	Particulars			Credit
					Balance			25615
2
a.	Date	Account titles and explanation				Debit	Credit
	Jan 29.	Cash			(17000*40%)	6800
		Allowance for doubtful accounts			(17000-6800)	10200
		Accounts receivable-Kovar Co.					17000
		(Cash received and balance written off)
	Apr 18.	Accounts receivable-Spencer clark				7405
		Allowance for doubtful accounts					7405
		(Reinstated the account)
		Cash				7405
		Accounts receivable-Spencer clark					7405
		(Cash received)
	Aug 9.	Allowance for doubtful accounts				8460
		Accounts receivable-Horse Co.					8460
		(Wrote off the balance)
	Nov 7.	Accounts receivable-Vinyl Co.				3940
		Allowance for doubtful accounts					3940
		(Reinstated the account)
		Cash				3940
		Accounts receivable-Vinyl Co.					3940
		(Cash received)
	Dec 31.	Allowance for doubtful accounts				23165
		Accounts receivable-Beth connelly Inc.					7095
		Accounts receivable-Delvine Co.					5540
		Accounts receivable-Moser distributors					9495
		Accounts receivable-Oceanic optics					1035
		(Accounts written off)
	Dec 31.	Bad debt expense			(Note:1)	34255
		Allowance for doubtful accounts					34255
		(Adjusting entry for uncollectible accounts)
	Unadjusted balance as per allowance for doubtful accounts=$ 4865 debit (Refer 2-b)
	Allowance for doubtful accounts should be=$ 35640
	Bad debt expense to be recognized=35640+4865=$ 40505
b.			Allowance for doubtful accounts
	Particulars			Debit	Particulars			Credit
	Accounts receivable-Kovar Co.			10200	Balance			25615
	Accounts receivable-Horse Co.			8460	Accounts receivable-Spencer clark			7405
	Accounts receivable-Beth connelly Inc.			7095	Accounts receivable-Vinyl Co.			3940
	Accounts receivable-Delvine Co.			5540
	Accounts receivable-Moser distributors			9495
	Accounts receivable-Oceanic optics			1035
				41825				36960
	Unadjusted balance			4865	Bad debt expense			40505
					Balance	(40505-4865)		35640
			Bad debt expenses
	Particulars			Debit	Particulars			Credit
	Allowance for doubtful accounts			34255
				34255				0
	Balance			34255
3	Expected net realizable value of accounts receivable=Accounts receivable as on Dec 31-Allowance for doubtful accounts as on Dec 31=1782000-35640=$ 1746360
4
a.	Bad debt expense=Sales*1%*1/4=17760000*1%*1/4=$ 44400
b.	Balance in allowance account=Bad debt expense-Unadjusted balance in allowance for doubtful accounts=44400-4865=$ 39535
c.	Expected net realizable value of accounts receivable=Accounts receivable as on Dec 31-Allowance for doubtful accounts as on Dec 31=1782000-39535=$ 1742465
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