Question

Romero and Ramos Company (R & R Co.) sells their products to retail customers on account.  R & R Co.’s year-end is September 30.  The September 30, 2021 trial balance reported the following selected information before adjusting journal entries:

Account	Debit	Credit
Accounts Receivables	$92,500
Allowance for Doubtful Accounts		$1,600

 

R & R Co. uses the Aging (% of Receivables) method to estimate its uncollectible accounts (bad debts).

An analysis of the accounts receivables balance shows the following:

 

Category
Current	$  5,000
1-30 days past due	$60,600
31-60 days past due	$12,500
61-90 days past due	$  8,000
>90 days past due	$  6,400
Total A/R	$92,500

 

R & R Co. management estimates the following rates of uncollectibility:  0% of A/R current is estimated as uncollectible, 2% of A/R past due 1-30 days, 5% of A/R past due 31-60 days, 30% of A/R past due 61-90 days and 50% of A/R past due > 90 days.

 

1. Prepare the adjusting journal entry R & R Co. would make at September 30, 2021 for estimated bad debts. Show your supporting calculations.

2. What amount would appear on the Balance Sheet for the Net Accounts Receivables (net realizable value) at September 30, 2021? Show how it would be presented on the Balance Sheet (see examples from class handout).

 

ASSUME INSTEAD that the company used the percentage of net credit sales method to estimate bad debts and estimates that 2% of net credit sales would become uncollectible.  Assume the same balances in Accounts Receivables and Allowance for Doubtful Accounts balances above at year end (BUT ignore the adjusting journal entry made under part a).  Net credit sales for R & R Co. for the year ended September 30, 2021 were $786,500 and for the year ended September 30, 2020 were $691,000.

 

3.  Prepare the adjusting journal entry R & R Co. would make at September 30, 2021 for estimated bad debts under the percentage of credit sales method. Show your supporting calculations.

4.  What amount would appear on the Balance Sheet for the Net Accounts Receivables (net realizable value) at September 30, 2021? Show how it would be presented on the Balance Sheet (see PPT slides and textbook).