Accounting for Uncollectible Accounts
Wilcox Mills is a manufacturer that makes all sales on 30-day credit terms. Annual sales are approximately $30 million. Atthe end of 2010, accounts receivable were presented in the company's balance sheet asfollows :
Accounts receivable from clients | $3,100,000 |
Less:Allowance for doubtful account | 80,000 |
During 2011 , $165,000 of specific accounts receivable were written offas uncollectible. Ofthese accounts written off, receivables totaling$15,000 were subsequently collected.At theend of20Il , anaging of accounts receivable indicated a need for a $90,000 allowance to cover possible failure tocollect the accounts currently outstanding. .
Wilcox Mills makes adjusting entries for uncollectible accounts only at year-end.
Instructions
a. Prepare the following general journal entries:
1. One entry to summarize all accounts written off against the Allowance for Doubtful Accounts during 2011.
2. Entries to record the$15 ,000 in accounts receivable that were subsequently collected.
3. The adjusting entry required at December 31, 2011 , to increase the Allowance for Doubtful Accounts to $90,000.
b. Notice that the Allowance for Doubtful Accounts was only $80,000 at the end of 2010, but uncollectible accounts during 2011 totaled $150,000 ($165,000 less the $15,000 reinstated). Do these relationships appear reasonable, or was theAllowance forDoubtful Accounts greatly understated at theend of 20IO? Explain.
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