Question

2. Complete Problem 7 All parts, for part e, only record transactions related to the account balance that was written off. P7. Aging of Accounts Receivable, Write-offs, Journal Entries. Council Company develops an aged schedule of accounts receivable at the end of each year. Council Company: Aged Schedule of Accounts Receivable Past Due 1-30 31-60 61-90 Over 90 Customer Current Days Days Days Days Totals Grey City Products $ 82,500 82,500 Smokey Industries $45,780 $168.900 345,000 559,680 Bleak Enterprises $567000 500 567,500 Drifter Incorporated $235,800 34,000 200 270,000 Denti Cosmetic Company 130,700 300 320 131,320 Totals $366.500 $601 300 $46,800 $168.900 $427.500 $1,611.000 $ The company estimated an allowance for uncollectible accounts based on the following estimates: Allowance Aging Category Provided Current 5% 1-30 days past due 9% 31-60 days past due 20% 61-90 days past due 55% Over 90 days past due 100% Council reported net credit sales of $20,000,000 for the current year. We present the company's ending bal- ances of accounts receivable and the allowance for uncollectible accounts: Accounts Receivable Ending Balance 1,611,000 Allowance for Uncollectible Accounts 94,800 Unadjusted Ending Balance Required a. Compute the balance required in the allowance for uncollectible accounts. b. Prepare the journal entry to record the bad debt provision for the current year. c. Independent of your answer to part (b), prepare the journal entry to record the bad debt provision for the current year assuming that the allowance for uncollectible accounts had a $231,000 debit balance. d. Provide the necessary journal entry based on Council's credit management deciding to write off all accounts that were over 90 days past due in the following year. c. Prepare the journal entries required to record the subsequent recovery of Smokey Industries' receivable if, after the write offs recorded in part (d), Smokey Industries pays the entire balance due.

Answer 1

a. Desired ending inventory under aging schedule

Aging category	% of allowance (A)	Amount (B)	Allowance amount based on aging (A*B)
Current	5%	366500	18325
1-30	9%	601300	54117
31-60	20%	46800	9360
61-90	55%	168900	92895
Over 90	100%	427500	427500
		1611000	602197

.

Aging schedule method is balance sheet method. So the calculated allowance amount total is the desired ending balance of Allowance for uncollectible Accounts.

.

Desired ending inventory = $602197

b. Adjustment entry to record bad debt provision for the current year

Allowance accounts has credit (positive ) balance of $94800 before adjustment, so needed amount for adjustment = 602197 - 94800 = $507397

Journal entry

Accounts	Debit	Credit
Bad debt expenses	$507397
Allowance for uncollectible Account		$507397

c. Adjustment entry to record bad debt provision for the current year

Allowance accounts has Debit (Negative) balance of $231000 before adjustment, so needed amount for adjustment = 602197 + 231000 = $833197

Journal entry

Accounts	Debit	Credit
Bad debt expenses	$833197
Allowance for uncollectible Account		$833197

d. Journal entry for write off uncollectible account

Accounts	Debit	Credit
Allowance for uncollectible Account	$427500
Accounts receivable		$427500

It deduct from provision and also deduct from gross accounts receivable, it does not affect balance sheet and net accounts receivable.

e. If bad debt is recovered, the journal entry is:

Accounts	Debit	Credit
Accounts receivable	$345000
Allowance for uncollectible Account		$345000

It add to gross accounts receivable and also add to Allowance for uncollectible Account

.

When cash is received

Accounts	Debit	Credit
Cash	$345000
Accounts receivable-smokey		$345000