Question

oey's Bike Shop sells new and used bicycle parts. Although a majority of its sales are cash sales, it makes a significant amount of redit sales. During Year 1, its first year of operations, Joey's Bike Shop experienced the following Sales on account Cash sales Collections of accounts receivable Uncollectible accounts charged off during the year $256, 300 691,900 243,485 1,476 Required: a. Assume that Joey's Bike Shop uses the allowance method of accounting for uncollectible accounts and estimates that 1 percent its sales on account will not be collected. Answer the following questions: (1) What is the Accounts Receivable balance at December 31, Year 1? (2) What is the ending balance of the Allowance for Doubtful Accounts at December 31, Year 1, after all entries and adjusting entries are posted? (3) What is the amount of uncollectible accounts expense for Year 1? (4) What is the net realizable value of accounts receivable at December 31, Year 1?

Answer 1

a.	Allowance method:
1	Accounts receivable balance at Dec 31:
					$
	Sales on account				256300
	Less: Collections of accounts receivable				243485
	Accounts receivable balance at Dec 31				12815
2	Ending balance of allowance for doubtful accounts at Dec 31,
					$
	Beginning balance				0
	Add: Allowance created
	(1% of sales on account)			(256300*1%)	2563
					2563
	Less:Uncollectible accounts charged off				1476
	Ending balance				1087
3	Amount of uncollctible accounts expense=Allowance created during the year=1% of sales on account=$ 2563
4	Net realizable value of accounts receivable
						$
	Accounts receivable balance at Dec 31					12815
	Less:Ending balance of allowance for doubtful accounts					1087
	Net realizable value of accounts receivable					11728
b.	Direct-Write off method:
1	Accounts receivable balance at Dec 31:
					$	$
	Sales on account					256300
	Less:
	Collections of accounts receivable				243485
	Uncollectible accounts charged off				1476	244961
	Accounts receivable balance at Dec 31					11339
2	Uncollectible accounts expense =Uncollectible accounts charged off during the year=$ 1476
3	Net realizable value of accounts receivable balance=Accounts receivable balance at Dec 31=$ 11339