Question

Allowance method entries The following transactions were completed by Wild Trout Gallery during the current fiscal year ended December 31: Jan. 19. Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalized the receipt of $1,590 cash in full payment of Arlene's account. Apr. 3. Wrote off the $9,110 balance owed by Premier GS Co., which is bankrupt. July 16. Received 30% of the $16,300 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible. Nov. 23. Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $2,590 cash in full payment. Dec. Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $6,855 ; Fogle Co., $2,035 ; Lake Furniture, $ 5,230 ; Melinda Shryer, $1,480. 31. Dec. 31. Based on an analysis of the $807,300 of accounts receivable, it was estimated that $35,100 will be uncollectible. Journalized the adjusting entry. Required: 1. Record the January 1 credit balance of $33,400 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts. 2. a. Journalize the transactions. If an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the $807,300 balance in accounts receivable reflects the adjustments made during the year.

Answer 1

2 a) Journal Entries (Amounts in $)

Date	Account Titles	Debit	Credit
Jan. 19	Accounts Receivable-Arlene Gurley	1,590
	Allowance for Doubtful Accounts		1,590
Jan. 19	Cash	1,590
	Accounts Receivable-Arlene Gurley		1,590
Apr. 3	Allowance for Doubtful Accounts	9,110
	Accounts Receivable-Premier GS Co.		9,110
July 16	Cash (16,300*30%)	4,890
	Allowance for Doubtful Accounts (16,300-4,890)	11,410
	Accounts Receivable-Haydon Co.		16,300
Nov. 23	Accounts Receivable-Harry Carr	2,590
	Allowance for Doubtful Accounts		2,590
Nov. 23	Cash	2,590
	Accounts Receivable-Harry Carr		2,590
Dec. 31	Allowance for Doubtful Accounts	15,600
	Accounts Receivable-Cavey Co.		6,855
	Accounts Receivable-Fogle Co.		2,035
	Accounts Receivable-Lake Furniture		5,230
	Accounts Receivable-Melinda Shryer		1,480
Dec. 31	Bad Debt Expense (To adjust the unadjusted balance to 35,100)	33,640
	Allowance for Doubtful Accounts [35,100-(33,400+1,590-9,110-11,410+2,590-15,600)]		33,640

2 b) Posting of above transactions to General Ledger is shown as follows:- (Amounts in $)

Allowance for Doubtful Accounts

Apr. 3	9,110	Jan. 1 Balance	33,400
July 16	11,410	Jan. 19	1,590
Dec. 31	15,600	Nov. 23	2,590
		Dec. 31 Adjusting Entry	33,640
		Dec. 31 Adjusted Balance	35,100

Bad Debt Expense

Dec 31 Adjusting Entry

33,640

3) Net Realizable value of Accounts Receivable

= Ending Balance of Accounts Receivable-Adjusted Balance of Allowance for Doubtful Accounts

= $807,300 - $35,100 = $772,200

4) a) Bad debt expense for the year = Sales*1%*1/2

= $4,980,000*1%*1/2 = $24,900

b)    Allowance for Doubtful Accounts (Amounts in $)

Apr. 3	9,110	Jan. 1 Balance	33,400
July 16	11,410	Jan. 19	1,590
Dec. 31	15,600	Nov. 23	2,590
		Dec. 31 Adjusting Entry	24,900
		Dec. 31 Adjusted Balance	26,360

c) Net Realizable value of Accounts Receivable

= Ending Balance of Accounts Receivable-Adjusted Balance of Allowance for Doubtful Accounts

= $807,300 - $26,360 = $780,940