Question

Allowance method entries Instructions Chart of Accounts T-Accounts Journal Final Questions Instructions The following transactions were completed by Irvine Company during the current fiscal year ended December 31: Feb. 8 Received 40% of the $18,000 balance owed by DeCoy Co., a bankrupt business, and wrote off the remainder as uncollectible. May 27 Reinstated the account of Seth Nelsen, which had been writ the preceding year as uncollectible. Journalized the receipt of $7,350 cash in full payment of Seth's account. Aug. 13 Wrote off the $6,400 balance owed by Kat Tracks Co., which has no assets. Oct. 31 Reinstated the account of Crawford Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,880 cash in full payment of the account. Dec. 31 Wrote off the following accounts as uncollectible (compound entry): Newbauer Co., $7,190; Bonneville Co., $5,500; Crow Distributors, $9,400; Fiber Optics, $1,110. Dec. 31 Based on an analysis of the $1,785,000 of accounts receivable, it was estimated that $35,700 will be uncollectible. Journalized the adjusting entry. 1. Record the January 1 credit balance of $26,000 in a T-account for Allowance for Doubtful Accounts 2. A. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. 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 net sales of $18,200,000 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.									Accounting equation
	Date	Account titles and explanation					Debit	Credit	Assets	Liabilities	Equity
	Feb 8.	Cash			(18000*40%)		7200		+
		Accounts receivable-Decoy Co.						7200	-
		(Received 40% of the balance owed by Decoy Co.)
		Allowance for doubtful accounts			(18000*60%)		10800		+
		Accounts receivable-Decoy Co.						10800	-
		(Balance 60% written off as uncollectible)
	May 27.	Accounts receivable-Seth Nelsen					7350		+
		Allowance for doubtful accounts						7350	-
		(Reinstated the account of Seth Nelsen)
		Cash					7350		+
		Accounts receivable-Seth Nelsen						7350	-
		(Cash received )
	Aug 13.	Allowance for doubtful accounts					6400		+
		Accounts receivable-Kat tracks Co.						6400	-
		(Wrote off the accounts )
	Oct 31.	Accounts receivable-Crawford Co.					3880		+
		Allowance for doubtful accounts						3880	-
		(Reinstated the account of Crawford Co.)
		Cash					3880		+
		Accounts receivable-Crawford Co.						3880	-
		(Cash received )
	Dec 31.	Allowance for doubtful accounts					23200		+
		Accounts receivable-Newbauer Co.						7190	-
		Accounts receivable-Bonneville Co.						5500	-
		Accounts receivable-Crow distributors						9400	-
		Accounts receivable-Fiber optics						1110	-
		(Wrote off the accounts as uncollectible)
	Dec 31.	Bad debt expense				(Note:1)	38870				-
		Allowance for doubtful accounts						38870	-
		(Allowance provided)
	Note:1
	Desired allowance for doubtful accounts balance at Dec 31=$ 35700
	Current balance in allowance for doubtful accounts:
						$	$
	Beg. Bal. (Credit)						26000
	Add:
	May. 27	(Reinstated the account of Seth nelson)				7350
	Oct 31.	(Reinstated the account of Crawford Co.)				3880	11230
							37230
	Less:
	Feb 8.	Wrote off the accounts of Decoy Co.				10800
	Aug 13.	Wrote off the accounts of Kat tracks Co.				6400
	Dec 31.	Wrote off various accounts				23200	40400
	End. Bal. (before adjustment)-debit balance						-3170
	Bad debt expense to be recognized=35700+3170=$ 38870
	Allowance for doubtful accounts
	Date	Debit	Credit	Date
	Feb 8.	10800	26000	Bal.
	Aug 13.	6400	7350	May. 27
	Dec 31.	23200	3880	Oct 31.
			38870	Dec 31.
		40400	76100
			35700	Bal.
		Bad debt expense
	Date	Debit	Credit	Date
	Dec 31.	38870
		38870	0
	Bal.	38870
3	Expected net realizable value=Accounts receivable as on Dec 31-Allowance for doubtful accounts as on Dec 31=1785000-35700=$ 1749300
4
a.	Bad debt expense=1/4*(sales*1%)=1/4*(18200000*1%)=1/4*182000=$ 45500
b.	Balance in the allownace account=Unadjusted balance+Bad debt expense=-3170+45500=$ 42330
c.	Expected net realizable value=Accounts receivable as on Dec 31-Allowance for doubtful accounts as on Dec 31=1785000-42330=$ 1742670