Question

Lily Corporation began 2019 with a $14,000 balance in accounts receivable and a $400 balance in the allowance for doubtful accounts. The company had credit sales (sales on account) of $46,000, collections on accounts receivable of $29,000, and wrote off uncollectible accounts of $250 during 2019.  The company uses the allowance method and estimates that 4% of its outstanding accounts receivable balance will be uncollectible.

Assuming no other entries were recorded to uncollectible accounts expense during 2019, the amount of the adjustment to uncollectible accounts expense appearing on the 2019 income statement would be?

The net realizable value of receivables at the end of the year would be?

Answer 1

Answer

• Working

	Accounts receivables	Allowance account
Beginning balance	$14,000	$400
Credit sale	$46,000
Collection on accounts	($29,000)
Written off accounts	($250)	($250)
Ending balance [unadjusted]	$30,750	$150

• Requirement 1
  Amount of adjustments to uncollectible accounts expense
  = Adjusted balance required in Allowance account – Unadjusted balance existing in Allowance account
  = ($30750 accounts receivables x 4%) credit - $ 150 credit
  = 1230 – 150
  = $ 1,080 [Answer]
• Requirement 2

Accounts receivables	$30,750
Less: Allowance for Doubtful accounts ($150 + 1080)	$1,230
Net realizable value at the end of year	$29,520