Problem

Accounting for Uncollectable; AccountsWale Factory is a manufacturer that makes all sales...

Accounting for Uncollectable; Accounts

Wale Factory is a manufacturer that makes all sales on 30-day credit terms. Annual sales are approximately $20 million. At the end of 2010, accounts receivable were presented in the company's balance sheet as follows:

Accountsreceivable from clients

$1,8000,000

Less: Allowance for doubtful accounts

40,000

During 2011 , S115,000 of specific accounts receivable were written off as uncollectible. Of these accounts written off, receivables totalling $9,000were subsequently collected. Attheendof2011, an aging of accounts receivable indicated a need for a $75,000 allowance to cover possible failure to collect the accounts currently outstanding.

Wale Factory 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 $9,000 in accounts receivable that were subsequently collected.


 3.  The adjusting entry required at December 31 , 2011 . to increase the Allowance for Doubtful Accounts to $75,000.

b.  Notice that the Allowance for Doubtful Accounts was only $40,000 at the end of 2010, but uncollectible accounts during 2011 totalled $106,000 ($115,000 less the $9,000 reinstated).Do these relationships appear reasonable, or was the Allowance for Doubtful Accounts greatly understated at the end of 2010? Explain.

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