Question

The following transactions were completed by Daws Company during the current fiscal year ended December 31:

Jan. 29	Received 40% of the $18,200 balance owed by Kovar Co., a bankrupt business, and wrote off the remainder as uncollectible.
Apr. 18	Reinstated the account of Spencer Clark, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,400 cash in full payment of Clark’s account.
Aug. 9	Wrote off the $6,465 balance owed by Iron Horse Co., which has no assets.
Nov. 7	Reinstated the account of Vinyl Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,830 cash in full payment of the account.
Dec. 31	Wrote off the following accounts as uncollectible (one entry): Beth Connelly Inc., $7,190; DeVine Co., $5,510; Moser Distributors, $9,410; Oceanic Optics, $1,205.
Dec. 31	Based on an analysis of the $1,820,500 of accounts receivable, it was estimated that $36,410 will be uncollectible. Journalized the adjusting entry.

	Required:
1.	Record the January 1 credit balance of $25,415 in a T account for Allowance for Doubtful Accounts.
2.	A. Journalize the transactions. For the December 31 adjusting entry, assume the $1,820,500 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 ¼ of 1% of the sales of $18,350,000 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.

CHART OF ACCOUNTS
Daws Company
General Ledger
ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable-Kovar Co. 122 Accounts Receivable-Spencer Clark 123 Accounts Receivable-Iron Horse Co. 124 Accounts Receivable-Vinyl Co. 125 Accounts Receivable-Beth Connelly Inc. 126 Accounts Receivable-DeVine Co. 127 Accounts Receivable-Moser Distributors 128 Accounts Receivable-Oceanic Optics 129 Allowance for Doubtful Accounts 131 Interest Receivable 132 Notes Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 Daws, Capital 311 Daws, Drawing 312 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise Sold 520 Sales Salaries Expense 521 Advertising Expense 522 Depreciation Expense-Store Equipment 523 Delivery Expense 524 Repairs Expense 529 Selling Expenses 530 Office Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Office Supplies Expense 535 Store Supplies Expense 536 Credit Card Expense 537 Cash Short and Over 538 Bad Debt Expense 539 Miscellaneous Expense 710 Interest Expense

1. Record the January 1 credit balance of $25,415 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. Allowance for Doubtful Accounts Jan. 1 Balance Jan. 29 10,920 Aug. 9 Apr. 18 6,465 Dec. 31 Nov. 7 Dec. 31 Adjusting Entry Dec. 31 Adj. Balance Dec. 31 Unadjusted Balance Bad Debt Expense

2. A. Journalize the transactions. For the December 31 adjusting entry, assume the $1,820,500 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.

Question not attempted.

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	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
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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 ¼ of 1% of the sales of $18,350,000 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

Jan.29 Particulars Cash Allowance for doubtful debts Accounts receivable-Kovar Co. (in $) 7,280 10,920 Allowance for doubtful debts 18,200 Opening balance Jan.29 Aug. 9 Dec.31 Dec.31 Apr.18 7,400 Accounts receivable-Spencer Clark Allowance for doubtful debts 10,920 Jan.1 6,465 Apr.18 23,315 Nov.7 32,355 Dec.31 73,055 25,415 7,400 3,830 36,410 73,055 7,400 Closing balance Adjusting entry Apr.18 7,400 Cash Accounts receivable-Spencer Clark 7,400 Bad debts expense Aug.9 Dec.31 6,465 36,410 Allowance for doubtful debts Accounts receivable-Iron Horse Co. 6,465 Nov.7 3,830 Expected net realisable value of accounts receivable as of December 31 is $ 17,88,145 calculated as the difference between the balance of accounts receivable and allowancefor doubtful debts as on Dec.31 i.e. $ 18,20,500 -32,355. Accounts receivable-Vinyl Co. Allowance for doubtful debts 3,830 Nov.7 3,830 Cash Accounts receivable-Spencer Clark 3,830

Dec.31 23,315 Allowance for doubtful debts Accounts receivable-Beth Connelly Accounts receivable-Devine Co. Accounts receivable-Moser Distributors Accounts receivable-Oceanic Optics 7,190 5,510 9,410 1,205 Dec.31 36,410 Bad debts expense Allowance for doubtful debts 36,410 If the adjusting entry is based on estimated expense of 1/4 of 1% of the sales of $ 1,83,50,000, the amount would be $ 45,875. Thus, the closing balance of allowance for doubtful debts would be $ 41,820 (32,355 + (45,875 - 36,410)] Bad debts expense for the year would be $ 45,875. Expected net realisable value of accounts receivable on December 31 would be $ 17,78,680 (18,20,500 - 41,820)