Question

QUESTION 7 On January 1 Year 1, the Accounts Receivable balance was 525,800 and the balance in the Allowance for Doubeful Accounts was $2800. On January 15, Year 1 an 5800 uncollectible account was written off. What is the net realizable value of accounts receivable immediately after the wide- 522 200 525 000 $23.800 $23.000 QUESTION 8 Which of the following reflects the effect of the year-end adjust estimated bad debes experse using the allowance method? + Equity Rev. lees OH NA NA Option Options Option Option QUESTION 9 The Miler Company earned $135,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1 Miller collected $88 000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3 of its sales on account What is the amount of bad debts expense that will be recognised on the Year 1 income statement $47000 52640 54050 51410

Answer 1

Solution

Question 7

The answer is $ 25,000

Here the allowance method is being used to estimate the bad debts. Accordingly  there is an opening balance in the Allowance for Bad debts account for $ 2,800. On January 15, an amount of $ 800 has been confirmed as bad debts. So the entry for writing off bad debts under allowance method is as follows

Allowance for Doubtful Debts A/C..................... Dr $ 800

To Accounts Receivable $ 800

After passing the write off entry, Accounts Receivable balance has been reduced by $ 800

So Net Realizable value of Accounts Receivable after write off is as follows.

Accounts Receivable balance on January 1 = $ 25,800

Less;- Bad Debts Written Off = $ 800

So Net Realizable value of Accounts Receivable = $ 25,000

Question 8

The year end adjusting entry to record estimated Bad debts expense using allowance method is as below

Bad Debts Expense A/C .......................... Dr

To Allowance for Doubtful Debts

Here the answer is Option B because when writing off bad debts, expense will be increased. Since there is no cash outflow, Cash Flows from Operating activities will not be affected. Also Assets and Revenue will not be affected.

Question 9

The answer is $ 1,410

The total credit sale of Miller Company during the year is $ 135,000. There was no opening balances in Receivables and allowance accounts. During the year Miller Company Collected an amount of

$ 88,000 Cash from Receivable accounts. Here Bad debts expense of 3% will be calculated on the amount of actual Accounts Receivables.

Actual Accounts Receivable will be calculated by deducting the cash collection from the Total Accounts Receivable.

ie. Total Accounts Receivable (Credit Sales) = $ 135,000

Less Cash Received = $ 88,000

So Balance Accounts Receivable is = $ 47,000

Here the estimate of 3% bad debts is calculated only on the actual amount of Accounts Receivable

So Bad debts recognized in Income statement is = 3% of $ 47,000

= $ 1,410