Question

ACCOUNTS RECEIVABLE—UNCOLLECTIBLE ACCOUNTS

Instructions: Present the journal entries specified below; show supporting calculations.

        The trial balance of Sophia Company at December 31, 2014 includes the following:

                                                                                                                         Debits          Credits

            Accounts Receivable ..................................................................      100,000

            Allowance for Doubtful Accounts ...............................................             500

            Sales (all on credit) .....................................................................                            700,000

            Sales Returns and Allowances ..................................................        30,000

(1)    If Sophia uses the aging method and estimates that $6,000 of receivables will be uncollectible, prepare the adjusting entry.

(2)    If Sophia estimates uncollectibles at 1% of net credit sales, prepare the appropriate adjusting entry.

(3)    Assume that on February 10, 2015 the specific account of Mark Nolan with a balance of $600, is deemed uncollectible. Record the write-off.

(4)    Assume that on May 12, 2015 Nolan pays one-half of the above balance in full and is expected to pay the remainder within 30 days. Record the appropriate entries.

B.    SALE OF ACCOUNTS RECEIVABLE

Instructions: Present the journal entries specified below.

(1)    Rosen Company sells $600,000 of accounts receivable to National Factors, Inc. for cash less a 2.5% service charge. Record the sale.

(2)    Made Visa credit card sales totaling $9,500. A 2% service fee is charged by Visa. Record the sale on the books of Rosen Company.

Answer 1

Sophia Company

S.No.	Particulars	Debit ($)	Credit ($)
(1)	Uncollectible Accounts Expense                              DR.	6,000
	To Allowance for Uncollectible Accounts		6,000
	(Being estimated that $6,000 of receivables will be uncollectible)
(2)	Uncollectible Accounts Expense                              DR. ($ 700,000 x 1%)	7,000
	To Allowance for Uncollectible Accounts		7,000
	(Being estimated that 1% of net credit sales will be uncollectible)
(3)	Allowance for Uncollectible Accounts                   DR.	600
	To Accounts Receivable – Mark Nolan		600
	(Being the account of Mark Nolan, is deemed uncollectible)
(4)	Accounts Receivable – Mark Nolan                       DR.	600
	To Allowance for Uncollectible Accounts		600
	(Being amount owned by Nolan became collectible)
	Cash A/C                                                                    DR.	300
	To Accounts Receivable – Mark Nolan		300
	(Being cash collected from Mark Nolan)

Note: IIn entry (2), have assumed that the estimates of 1% of net credit sales will be uncollectible is additional allowance made other than the one made in transaction (1). If the alternative option is assumed than the entry (2) will be made with the amount of $ 1,000 {($ 700,000 x 1%) - $ 6,000}