Question

july 29: reinstated the account of keith macpherson and received $7,530 cash in full payment

Percent of Sales Method At the end of the current year, Accounts Receivable has a balance of $535,000; Allowance for Doubtful Accounts has a debit balance of $5,000; and sales for the year total $2,410,000. Bad debt expense is estimated at 1/4 of 1% of sales. 1. Determine the amount of the adjusting entry for uncollectible accounts. 2. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable Allowance for Doubtful Accounts Bad Debt Expense 3. Determine the net realizable value of accounts receivable.

Answer 1

1) The Allowance for doubtful accounts should be at 1% of sales i.e. 2,410,000*1% = 24,100. Out of this 1/4 is estimated as bad i.e. 6,025, so balance in the allowance for doubtful accounts is to be 18,075 (credit)

The existing balance is the account is debit balance of 5,000.

The net entry to be posted to adjust the uncollectible account = 24,100 + 5000 = 29,100 (credit)

2) Adjusted balances will be as follows -

Accounts Receivable = 535,000 (debit)

Allowance for doubtful debts = 18,075 (credit)

Bad debts = 6,025 (credit)

3) Net Realizable value of accounts receivable = 535,000 - 18,075 - 6,025 = 510,900

4) If an asset is long lived and is used in a productive manner in a business, it will be classified as a "Fixed Asset" as it fits the definition of fixed asset as per IAS 16

Fixed Assets normally refer to property, plant, and equipment that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and they are expected to be used with more than one year accounting period