Question

Allowance method entries 

The following transactions were completed by Wild Trout Gallery during the current fiscal year ended December 31: 

Jan. 19. Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalized the receipt of $1,965 cash in full payment of Arlene's account. 

Apr. 3. Wrote off the $11,260 balance owed by Premier GS Co., which is bankrupt. 

July 16. Received 25% of the $20,200 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible. 

Nov. 23. Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $3,205 cash in full payment. 

Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $8,470 ; Fogle Co., 52,515; Lake Furniture, $ 6,465; Melinda Shryer, $1,825. 

Dec. 31. Based on an analysis of the $998, 200 of accounts receivable, it was estimated that $43,400 will be uncollectible. Journalized the adjusting entry. 

Required: 

1. Record the January 1 credit balance of $41,300 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts. 

2.a. Journalize the transactions. If an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the 5998, 200 balance in accounts receivable reflects the adjustments made during the year.

2.b. Post each entry that affects the following T accounts and determine the new balances: 

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 12 of 1% of the sales of $6,160,000 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 (after all of the adjustments and the adjusting entry). 

Answer 1

Answer 1

Transactions under the allowance method
Date	Account title	Debit	Credit
Jan 19	Accounts receivable - Arlene Gurley	$          1,965
	Allowance for Doubtful Accounts		$          1,965
	To reinstate Accounts receivable.
Jan 19	Cash	$          1,965
	Accounts receivable - Arlene Gurley		$          1,965
	To record Collection on account.
Apr 3	Allowance for Doubtful Accounts	$        11,260
	Accounts receivable -GS. CO		$        11,260
	To record account write off.
July 16	Cash (20200*25%)	$       5,050
	Allowance for Doubtful Accounts (20200-5050)	$     15,150
	Accounts receivable - Hayden Co.		$     20,200
	To record collection from customer and remainder amount is write off.
Nov 23	Accounts receivable - Harry Car	$          3,205
	Allowance for Doubtful Accounts		$          3,205
	To reinstate Accounts receivable.
Nov 23	Cash	$          3,205
	Accounts receivable - Harry Car		$          3,205
	To record Collection on account.
Dec 31	Allowance for Doubtful Accounts	$     19,275
	Accounts receivable -Cavey Co		$       8,470
	Accounts receivable - Fogle Co		$       2,515
	Accounts receivable - Lake Furniture		$       6,465
	Accounts receivable - Melinda shryer		$       1,825
	To record accounts write off.
Dec 31	Bad debt expense	$        42,615
	Allowance for Doubtful Accounts		$        42,615
	To record bad debts expense.

	Allowance for Doubtful Accounts	$       41,300
Add	Reinstate Accounts receivable (Jan 19)	$         1,965
Less	Account write off (Apr 3)	$     (11,260)
Less	Account write off (July 16)	$     (15,150)
Add	Reinstate Accounts receivable (Nov 23)	$         3,205
Less	Account write off (Dec 31)	$     (19,275)
	Unadjusted credit balance of Allowance for Doubtful Accounts	$             785
	Adjusted credit balance of Allowance for Doubtful Accounts	$       43,400
Less:	Unadjusted credit balance of Allowance for Doubtful Accounts	$             785
	Adjustment entry for bad debts expense	$       42,615

Answer 2

Allowance for Doubtful Accounts
Apr 3	$        11,260	Jan 1. Balance	$        41,300
July 16	$        15,150	Jan 19	$          1,965
Dec 31	$        19,275	Nov 23	$          3,205
		Dec 31. Unadjusted Balance	$              785
		Dec 31. Adj Entry	$        42,615
		Dec 31. Adjusted Balance	$        43,400
Bad debt expense
Dec 31. Adj Entry	$        42,615

Answer 3

Accounts receivable	$     998,200
Less: Adjusted credit balance of Allowance for Doubtful Accounts	$     (43,400)
Net realizable value of accounts receivable	$     954,800

Answer 4

Bad debts expense (6160000*1%*1/2)	$        30,800
Unadjusted credit balance of Allowance for Doubtful Accounts	$              785
Add: Adjustment entry for bad debts expense	$        30,800
Balance in allowance account after adjustment of December 31	$        31,585
Accounts receivable	$     998,200
Less: Adjusted credit balance of Allowance for Doubtful Accounts	$     (31,585)
Net realizable value of accounts receivable	$     966,615