Question

The following transactions were completed by Daws Company during the current fiscal year ended December 31: Jan. 29 Received 35% of the $18,600 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 $7,445 cash in full payment of Clark's account. Wrote off the $6,375 balance owed by Iron Horse Co., which has no assets. Aug. 9 Nov. 7 Reinstated the account of Vinyl Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,840 cash in full payment of the account. Dec. 31 Wrote off the following accounts as uncollectible (one entry): Beth Connelly Inc., $7,240; DeVine Co., $5,575; Moser Distributors, 59,355, Oceanic Optics, $1,035. Based on an analysis of the $1,768,000 of accounts receivable, it was estimated that $35,360 will be uncollectible. Journalized the adjusting entry. Dec. 31 Required: 1. Record the January 1 credit balance of $26.195 in a T account for Allowance for Doubtful Accounts. 2. A. Journalize the transactions. For the December 31 adjusting entry, assume the $1,768,000 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 14 of 1% of the sales of $18,380,000 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. & 2.B.

Allowance for Doubtful Accounts
Jan. 29		12090	Jan. 1	Balance	26195
Aug. 9		6375	Apr. 18		7445
Dec. 31		23205	Nov. 7		3840
			Dec. 31	Adjusting entry	39550
Dec. 31	Unadjusted Balance	4190	Dec. 31	Adj. Balance	35360
Bad Debt Expense
Dec. 31	Adjusting entry	39550

2.A.

JOURNAL					ACCOUNTING EQUATION
DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
Jan. 29	Cash (35% x $18600)		6510		6510
	Allowance for Doubtful Accounts		12090		12090
	Accounts receivable-Kovar Co.			18600	-18600
Apr. 18	Accounts receivable-Spencer Clark		7445		7445
	Allowance for Doubtful Accounts			7445	-7445
Apr. 18	Cash		7445		7445
	Accounts receivable-Spencer Clark			7445	-7445
Aug. 9	Allowance for Doubtful Accounts		6375		6375
	Accounts receivable-Iron Horse Co.			6375	-6375
Nov. 7	Accounts receivable-Vinyl Co.		3840		3840
	Allowance for Doubtful Accounts			3840	-3840
Nov. 7	Cash		3840		3840
	Accounts receivable-Vinyl Co.			3840	-3840
Dec. 31	Allowance for Doubtful Accounts		23205		23205
	Accounts receivable-Beth Connelly, Inc.			7240	-7240
	Accounts receivable-DeVine Co.			5575	-5575
	Accounts receivable-Moser Distributors			9355	-9355
	Accounts receivable-Oceanic Optics			1035	-1035
Dec. 31	Bad debt expense		39550				-39550
	Allowance for Doubtful Accounts			39550	-39550
					-39550		-39550

Note: The allowance for doubtful accounts being a contra asset account, the effects on the same have been shown under Assets in the accounting equation.

3.

Accounts receivable $	1768000
Less: Allowance for Doubtful Accounts	-35360
Net realizable value $	1732640

4.A. Bad debt expense for the year = $18380000 x 1/4% = $45950

4.B. Balance in the allowance account after adjustment of December 31 = $45950 - $4190 = $41760

4.C.

Accounts receivable $	1768000
Less: Allowance for Doubtful Accounts	-41760
Net realizable value $	1726240