Question

P7.2 A series of unrelated situations follow for several companies that use ASPE:

1. Atlantic Inc.'s unadjusted trial balance at December 31, 2020, included the following accounts:

Debit
Credit
Allowance for doubtful accounts      
$ 8,000
   
Sales revenue      
$1,980,000
Sales returns and allowances  
60,000
Sales discounts  
4,400
2. An analysis and aging of Central Corp.'s accounts receivable at December 31, 2020, disclosed the following:

Amounts estimated to be uncollectible      
$  160,000
Accounts receivable  
1,790,000
Allowance for doubtful accounts (per books)  
125,000
3. Western Co. provides for doubtful accounts based on 4.5% of credit sales. The following data are available for 2020:

Credit sales during 2020      
$3,200,000
Allowance for doubtful accounts 1/1/20  
37,000
Collection of accounts written off in prior years (customer credit was re-established)  
18,000
Customer accounts written off as uncollectible during 2020  
36,000
4. At the end of its first year of operations, on December 31, 2020, Pacific Inc. reported the following information:

Accounts receivable, net of allowance for doubtful accounts      
$950,000
Customer accounts written off as uncollectible during 2020  
24,000
Bad debt expense for 2020  
92,000
5. The following accounts were taken from Northern Inc.'s unadjusted trial balance at December 31, 2020:

Debit
Credit
Sales revenue (all on credit)              
$950,000
Sales discounts  
$ 21,400
Allowance for doubtful accounts  
34,000
Accounts receivable  
610,000
Instructions
a. For situation 1, Atlantic estimates its bad debt expense to be 1.5% of net sales. Determine its bad debt expense for 2020.

b. For situation 2, what is the net realizable value of Central Corp.'s receivables at December 31, 2020?

c. For situation 3, what is the balance in Allowance for Doubtful Accounts at December 31, 2020?

d. For situation 4, what is the balance in Accounts Receivable at December 31, 2020, before subtracting the allowance for doubtful accounts?

e. For situation 5, if doubtful accounts are 7% of accounts receivable, what is the bad debt expense amount to be reported for 2020?

Answer 1

(1)
Calculation of net Sales
Sales revenue		1980000
Less:-
Sales Return	60000
Sales Discount	4400	64400
Net sales		1915600
Calculation of Bad Debts
1.5% of Net sales		28734
1915600*1.5/100
Calculation of Bad debts expenses to be recognised in 2020
Bad debts of 2020		28734
Less :- Provision		8000
		20734
(2)
Account receivables		1790000
Less:-
Provision	125000
Amount estimated uncollectible	160000	285000
net realizable value of Central Corp.'s receivables at December 31, 2020		1505000
(3)
balance in Allowance for Doubtful Accounts at December 31, 2020
Opening Balances		37000
Add :- Provision @4.5% of credit sales	144000	144000
Total		181000
(4)
Accounts receivable, net of allowance for doubtful accounts		950000
Less:-
Customer accounts written off as uncollectible during 2020	24000
Bad debt expense for 2020	92000	116000
Total		834000
(5)
bad debt expense amount to be reported for 2020
Account receivable	A	610000
Doubtfull account @7% of Account receivables	B	42700
Allowance for doubtful accounts	C	34000
Net bad debts expenses amount to be reported (B-C)	D	8700