Question

The Fast &Furious Car Rentals starts business on January 1, 2014. At December 31, 2014, the total accounts receivable of the company are $350,000; out of which, management estimates that receivables amounting to $4,500 will turn out to be uncollectible. At February 12, 2015, Astra Ltd who is a receivable of $1,200, becomes bankrupt and nothing can be recovered from them. At December 31, 2015, the accounts receivable show a balance of $475,000. On this date, the company revises the estimates of its credit losses and determines that receivables amounting to $4,800 will become uncollectible receivables.

Required:

a. Prepare an adjusting entry to recognize uncollectible accounts expense at December 31, 2014.

b. Prepare an entry to write off accounts receivable at February 12, 2015.

c. Prepare an adjusting entry to recognize uncollectible accounts expense at December 31, 2015.

(25 marks)

Answer 1

S.No.	Date	Accounts Title and Explanation	Debit	Credit
a.	Dec 31, 2014	Bad debt Expense	4,500
		Allowance for uncollectible accounts		4,500
		(To recognize uncollectible accounts expense)
b,	February 12, 2015	Allowance for uncollectible accounts	1,200
		Accounts Receivable		1,200
		( to write off accounts receivable)
c.	Dec 31, 2015	Bad debt Expense	1,500		See Note below
		Allowance for uncollectible accounts		1,500
		(To recognize uncollectible accounts expense)
		Allowance for uncollectible accounts as on 1 jan 2015	4,500
		Less: written off	(1,200)
		Ending balance	3,300
		Ending balance estimated by management	4,800
		BAD DEBT EXPENSE(DIFF OF ABOVE 2)	1,500	(4800-3300)