Question

Wilson Leather Products sells leather clothing at both wholesale and retail. The company has found that there is a higher rate of uncollectible accounts from retail credit sales than from wholesale credit sales. Wilson computes its estimated loss from uncollectible accounts at the end of each year. The amount is based on the rates of loss that the firm has developed from experience for each division. A separate computation is made for each of the two types of sales. The firm uses the percentage of net credit sales method.

As of December 31, 2019, Accounts Receivable has a balance of $393,000, and Allowance for Doubtful Accounts has a debit balance of $336. The following table provides a breakdown of the credit sales for the year 2019 and the estimated rates of loss:

Category Wholesale Retail Amount $2,050,000 554,000 Estimated Rate of Loss 0.6% 1.1 0.00

Required:

1. Compute the estimated amount of uncollectible accounts expense for each of the two categories of net credit sales for the year.

2. Prepare an adjusting entry in general journal form to provide for the estimated uncollectible accounts on December 31, 2019. Use Uncollectible Accounts Expense.

3. Show how Accounts Receivable and Allowance for Doubtful Accounts should appear on the balance sheet of Wilson Leather Products as of December 31, 2019.

4. On January 20, 2020, the account receivable of Columbus Clothiers, amounting to $840, is determined to be uncollectible and is to be written off. Record this transaction in the general journal.

5. On November 26, 2020, the attorneys for Wilson turned over a check for $840 that they obtained from Columbus Clothiers in settlement of its account, which had been written off on January 20. The money has already been recorded in the cash receipts journal. Give the general journal entry to reverse the original write-off.

Analyze:

Compute the net accounts receivable amount that should be reported in the financial statements for the year ended December 31, 2019.

Answer 1

Please find below table useful to compute desired results: -

A Allowance for Doubtful Accounts that should be at 31st Dec 2019 1 Amount Uncollectible % Allowance for Doubtful Accounts 2050000 554000 -B3+B4 2 Category -0.6/100 1.1/100 =B3*C3 -B4*C4 -D3+D4 3 Wholesale 4 Retail 5 Total Bad debt expense at year end: =D5 336 =B7-B8 6 Allowance for Doubtful Accounts 7 8 Already in the books 9 Bad debt expense at year end 10 Debit (S) -B9 Credit (S) 11 Аccount 12 Bad debt Expense -B12 13 Allowance for Doubtful Accounts 14 Amount $ | 393000 17 Less: Allowance for Doubtful accounts =B9 -B16-B17 15 Balance Sheet 16 Accounts Receivable 18 Accounts Receivable (net) 19 Credit Debit (S) 840 20 Account 21 Allowance for Doubtful Accounts 840 22 Accounts Receivable 23 Debit (S) 840 Credit (S) 24 Ассount 25 Accounts Receivable 840 26 Allowance for Doubtful Accounts

End results would appear as follows: -

A Allowance for Doubtful Accounts that should be at 31st Dec 2019 1 Amount S Uncollectible % Allowance for Doubtful Accounts $12,300.00 $6,094.00 $18,394.00 2 Category 0.60% 1.10% 3 Wholesale $2,050,000.00 4 Retail $554,000.00 5 Total $2,604,000.00 Bad debt expense at year end: 6 $18,394.00 $336.00 $18,058.00 Allowance for Doubtful Accounts 7 8 Already in the books 9 Bad debt expense at year end 10 b Debit (S) $18,058.00 Credit (S) 11 Асcount 12 Bad debt Expense $18,058.00 13 Allowance for Doubtful Accounts 14 c Amount $ $393,000.00 $18,058.00 $374,942.00 15 Balance Sheet 16 Accounts Receivable 17 Less: Allowance for Doubtful accounts 18 Accounts Receivable (net) 19 d Debit (S) Credit (S) 20 Account 21 Allowance for Doubtful Accounts $840.00 $840.00 22 Accounts Receivable 23 e Debit (S) $840.00 Credit (S) 24 Ассount 25 Accounts Receivable $840.00 26 Allowance for Doubtful Accounts