Question

CHART OF ACCOUNTS Daws Company General Ledger ASSETS REVENUE 110 Cash 410 Sales 111 Petty Cash 610 Interest Revenue 121 Accounts Receivable-Kovar Co. 122 Accounts Receivable-Spencer Clark EXPENSES 510 Cost of Merchandise Sold 123 Accounts Receivable-Iron Horse Co. 124 Accounts Receivable-Vinyl Co. 125 Accounts Receivable-Beth Connelly Inc. 126 Accounts Receivable-DeVine Co. 127 Accounts Receivable-Moser Distributors 128 Accounts Receivable-Oceanic Optics 129 Allowance for Doubtful Accounts 520 Sales Salaries Expense 521 Advertising Expense 522 Depreciation Expense-Store Equipment 523 Delivery Expense 524 Repairs Expense 529 Selling Expenses 530 Office Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 131 Interest Receivable 132 Notes Receivable 141 Merchandise Inventory

The following transactions were completed by Daws Company during the current fiscal year ended December 31:

Jan. 29	Received 35% of the $18,100 balance owed by Kovar Co., a bankrupt business, and wrote off the remainder as uncollectible.
Apr. 18	Reinstated the account of Spencer Clark, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,300 cash in full payment of Clark’s account.
Aug. 9	Wrote off the $6,350 balance owed by Iron Horse Co., which has no assets.
Nov. 7	Reinstated the account of Vinyl Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,865 cash in full payment of the account.
Dec. 31	Wrote off the following accounts as uncollectible (one entry): Beth Connelly Inc., $7,105; DeVine Co., $5,435; Moser Distributors, $9,390; Oceanic Optics, $1,075.
Dec. 31	Based on an analysis of the $1,796,000 of accounts receivable, it was estimated that $35,920 will be uncollectible. Journalized the adjusting entry.

	Required:
1.	Record the January 1 credit balance of $26,080 in a T account for Allowance for Doubtful Accounts.
2.	A. Journalize the transactions. For the December 31 adjusting entry, assume the $1,796,000 balance in accounts receivable reflects the adjustments made during the year. Refer to the chart of accounts for a listing of the account titles the company uses. 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 ¼ of 1% of the sales of $18,260,000 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

2.a.	Account Titles	Debit	Credit
	Bad Expense	39,795
	Allowance for doubtfull accounts		39,795
2.b.	Allowance for Doubtful accounts
	Jan.29	11,765	Jan.1 Balance	26,080
	Aug.9	6,350	Apr.18	7,300
	Dec. 31	23,005	Nov.7	3,865
			Dec.31 Adjusting Entry	39,795
	Dec.31 Unadjusted balance	3,875	Dec.31 Adjusted balance	35,920
		Bad Debt Expense
	Dec.31 Adjusting Entry	39,795
3.)	Expected net realizable value of accounts receivables as on December 31:-
	= 1,796,000 - 35,920
	= $ 1,760,080
4.)
a.)	Bad debt expense for the year = $ 45,650    (18,260,000 x 1% x 1/4 )
b.)	Balance in allowance after adjustment of December 31:
	= 45,650 - 3,875
	= $ 41,775
c.)	Expected net realizable value of accounts receivables as on December 31:-
	= 1,760,000 - 41,775
	= $ 1,718,225