Question

8-40 CHAPTER 8 Reporting and Analyzing Receivables Prepare fornal entries related to bad debe expense, and computerarios P8.2A (LO 2, 4), AP At December 31, 2021, Suisse Imports reported this information on its balance sheet. Accounts receivable $600,000 Less: Allowance for doubtful accounts 37,000 During 2022, the company had the following transactions related to receivables. 1. Sales on account $2,500,000 2. Sales returns and allowances 50.000 3. Collections of accounts receivable 2,200.000 4. Write-offs of accounts receivable deemed uncollectible 41,000 5. Recovery of bad debts previously written off as uncollectible 15,000 b. A/R bal. $809,000 Instructions a. Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable. (Omit cost of goods sold entries.) b. Enter the January 1, 2022, balances in Accounts Receivable and Allowance for Doubtful post the entries to the two accounts (use T-accounts), and determine the balances. c. Prepare the journal entry to record bad debt expense for 2022, assuming that aging the accounts receivable indicates that estimated bad debts are $46,000. d. Compute the accounts receivable turnover and average collection period.

Answer 1

a.

	Journal entry	Dr.	Cr.
1	Accounts Receivable	$2,500,000
	Sales		$2,500,000
	(sales made on credit)
2	Sales return	$50,000
	Accounts receivable		$50,000
	(reducing sales and accounts receivable by the amount of goods returned)
3	cash	$2,200,000
	Accounts receivable		$2,200,000
	(A/R collected)
4	Bad debts expense	$4,000
	Allowance for doubtful accounts		4000
	(allowance has only $37000, actual bad debts $41000, so creating allowance for the difference)
	allowance for doubtful accounts	41000
	Accounts receivable		41000
	(writing off bad debts under allowance)
5	Accounts receivable	$15,000
	Allowance for doubtful accounts		$15,000
	(reversing the entry made for writing of bad debts)
5	Cash	$15,000
	Accounts receivable		$15,000
	($15000 recovered from debtors)

2.

opening bal ON- Accounts Receivable 600.000.00 2,500,000.00 50,000.00 2,200,000.00 41,000.00 15,000.00 15,000.00 809,000.00 opening bal Allowance for doubtful debts 37,000.00 41,000.00 4,000.00 15,000.00 15,000.00

3.

Bad debts	31000
allowance for bad debts		31000
(since as per aging report estimated bad debts are 46000, indicates allowance should have a balance of $46000)

balance of allowance for doubtful debts= $15000

balance to be created= 46000-15000=$31000

4.

accounts receivable turnover

indicates number of times , average accounts receivable are collected during a year.

net credit sales/ average accounts receivable

average accounts receivable

(opening balnce+closing balance)/2=

opening balance	600000
closing balance	809000
average balance	(600000+809000)/2

=704500

Net credit sales
sales	2500000
less: return	50000
	2450000

accounts receivable turnover= 2450000/704500= 3.44

average collection period

denotes the average no of days between the credit sales made and the amount actually collected.

average collection period = no. of days in the year 2017/ accounts receivable turnover ratio

=365/3.44

=104.95 days