Question

Wilson Leather Products sells leather clothing at both wholesale and retail. The company has found that there is a higher rate of uncollectible accounts from retail credit sales than from wholesale credit sales. Wilson computes its estimated loss from uncollectible accounts at the end of each year. The amount is based on the rates of loss that the firm has developed from experience for each division. A separate computation is made for each of the two types of sales. The firm uses the percentage of net credit sales method.

As of December 31, 2019, Accounts Receivable has a balance of $384,000, and Allowance for Doubtful Accounts has a debit balance of $246. The following table provides a breakdown of the credit sales for the year 2019 and the estimated rates of loss:

Category		Amount			Estimated Rate of Loss
Wholesale		$	1,960,000		0.5	%
Retail			509,000		1.2

  
Required:

1. Compute the estimated amount of uncollectible accounts expense for each of the two categories of net credit sales for the year.
2. Prepare an adjusting entry in general journal form to provide for the estimated uncollectible accounts on December 31, 2019. Use Uncollectible Accounts Expense.
3. Show how Accounts Receivable and Allowance for Doubtful Accounts should appear on the balance sheet of Wilson Leather Products as of December 31, 2019.
4. On January 20, 2020, the account receivable of Columbus Clothiers, amounting to $750, is determined to be uncollectible and is to be written off. Record this transaction in the general journal.
5. On November 26, 2020, the attorneys for Wilson turned over a check for $750 that they obtained from Columbus Clothiers in settlement of its account, which had been written off on January 20. The money has already been recorded in the cash receipts journal. Give the general journal entry to reverse the original write-off

Problem 15.1A Estimating and recording uncollectible accounts transactions on the basis of sales. LO 15- 1, 15-2, 15-3, 15-4 Wilson Leather Products sells leather clothing at both wholesale and retail. The company has found that there is a higher rate of uncollectible accounts from retail credit sales than from wholesale credit sales. Wilson computes its estimated loss from uncollectible accounts at the end of each year. The amount is based on the rates of loss that the firm has developed from experience for each division. A separate computation is made for each of the two types of sales. The firm uses the percentage of net credit sales method. As of December 31, 2019, Accounts Receivable has a balance of $384,000, and Allowance for Doubtful Accounts has a debit balance of $246. The following table provides a breakdown of the credit sales for the year 2019 and the estimated rates of loss: Category Wholesale Retail Amount $ 1,960,000 509,000 Estimated Rate of Loss 0.5% 1.2 Required: 1. Compute the estimated amount of uncollectible accounts expense for each of the two categories of net credit sales for the year. 2. Prepare an adjusting entry in general journal form to provide for the estimated uncollectible accounts on December 31, 2019. Use Uncollectible Accounts Expense. 3. Show how Accounts Receivable and Allowance for Doubtful Accounts should appear on the balance sheet of Wilson Leather Products as of December 31, 2019. 4. On January 20, 2020, the account receivable of Columbus Clothiers, amounting to $750, is determined to be uncollectible and is to be written off. Record this transaction in the general journal. 5. On November 26, 2020, the attorneys for Wilson turned over a check for $750 that they obtained from Columbus Clothiers in settlement of its account, which had been written off on January 20. The money has already been recorded in the cash receipts journal. Give the general journal entry to reverse the original write-off. Analyze: Compute the net accounts receivable amount that should be reported in the financial statements for the year ended December 31, 2019.

Answer 1

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Wilson Leather Products
Answer 1
Allowance for Doubtful Accounts that should be at 31st Dec 2019:
	A	B	C=A*B
Category	Amount $	Uncollectible %	Allowance for Doubtful Accounts
Wholesale	1,960,000.00	0.5%	9,800.00
Retail	509,000.00	1.2%	6,108.00
Total	2,469,000.00		15,908.00
Bad debt expense at year end:
Allowance for Doubtful Accounts	15,908.00	See C
Already in the books	(246.00)	D
Bad debt expense at year end:	16,154.00	E=C-D
Answer 2
Adjusting Entry
Account	Debit ($)	Credit ($)
Bad debt Expense	16,154.00
Allowance for Doubtful Accounts		16,154.00
Answer 3
Balance Sheet	Amount $
Accounts Receivable	384,000.00
Less: Allowance for Doubtful accounts	16,154.00
Accounts Receivable (net)	367,846.00
Answer 4
Journal Entry
Account	Debit ($)	Credit ($)
Allowance for Doubtful Accounts	750.00
Accounts Receivable		750.00
(being Accounts Receivable of Columbus Clothiers is uncollectible and written off)
Answer 5
Journal Entry
Account	Debit ($)	Credit ($)
Accounts Receivable	750.00
Allowance for Doubtful Accounts		750.00
(being Accounts Receivable of Columbus Clothiers is previously written off as uncollectible now recovered in full)