ACC 521 Lecture Notes - Lecture 10: Porton, Internal Control, Latvian Mythology

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4 Oct 2014

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Ep11-7 continuity schedule for allowance for doubtful accounts: complete the following continuity schedule indicating how the movements in the allowance for doubtful accounts tie into other amounts in the financial statements. Netted off accounts receivable, previous year balance, to give a/r at net realizable value". New bad debts estimate recognized in the year. Netted off accounts receivable, current year balance, to give a/r at net realizable value" b) Enquire about and document management"s method of estimation uncollectible accounts. Obtain management"s current analysis and calculation supporting the amount reported in the draft financial statements. Agree management"s amounts to source records and recalculate the estimate to ensure no errors were made by management. Assess the extent to which the auditee"s allowance provides for the possibility the invoices in each category will turn out to be uncollectible. (existence, completeness, valuation) Agree the totals to the financial statement a/r balance and working papers for audit testing/confirmation of.

Related Questions

---> Morgan Company provides you with anaged accounts receivable balance as follows:

Days Outstanding $Amount Est %Uncollectible

0-30 2,350,000 3%

31-60 1,110,000 7%

61-90 750,000 8%

91-120 300,000 10%

120+ 62,000 100%

total 4,572,000

The current allowance for doubtful accounts balance beforewrite-offs is $91,000.

Required:

Assuming Ethan Co uses the balance sheet (AR balance)approach:

-Record the write off of uncollectible accounts.

-What is the new allowance for doubtful accounts balance afterall adjustments?

-What is the bad debt expense, record the entry.

-What is the new Net Realizable Value of the receivable on thebalance sheet?

Jan. 19.	Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalize the receipt of $2,120 cash in full payment of Arleneâs account.
Apr. 3.	Wrote off the $12,150 balance owed by Premier GS Co., which is bankrupt.
July 16.	Received 30% of the $21,800 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 $3,455 cash in full payment.
Dec. 31.	Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $9,135 ; Fogle Co., $2,715 ; Lake Furniture, $ 6,975 ; Melinda Shryer, $1,970.
Dec. 31.	Based on an analysis of the $1,074,100 of accounts receivable, it was estimated that $46,700 will be uncollectible. Journalize the adjusting entry.

Required:

1. Record the January 1 credit balance of $44,500 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 $1,074,100 balance in accounts receivable reflects the adjustments made during the year.

Jan. 19-reinstate	Accounts Receivable-Arlene Gurley
	Allowance for Doubtful Accounts
Jan. 19-collection	Cash
	Accounts Receivable-Arlene Gurley
Apr. 3	Allowance for Doubtful Accounts
	Accounts Receivable-Premier GS Co.
July 16	Cash
	Allowance for Doubtful Accounts
	Accounts Receivable-Hayden Co.
Nov. 23-reinstate	Accounts Receivable-Harry Carr
	Allowance for Doubtful Accounts
Nov. 23-collection	Cash
	Accounts Receivable-Harry Carr
Dec. 31-write-off	Allowance for Doubtful Accounts
	Accounts Receivable-Cavey Co.
	Accounts Receivable-Fogle Co.
	Accounts Receivable-Lake Furniture
	Accounts Payable-Melinda Shryer
Dec. 31-adjusting	Bad Debt Expense
	Allowance for Doubtful Accounts

Feedback

Set up T accounts.
Recall that under the allowance method, the entry to write off an account debits Allowance for Doubtful Accounts and credits Accounts Receivable.
In such cases where an account receivable that has been written off is later collected, the account is reinstated by an entry that reverses the write-off entry. Then record the receipt of cash as payment for the account.
The amount of bad debt expense is affected by the balance in the allowance account.

Learning Objective 4.

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

Allowance for Doubtful Accounts
Apr. 3		Jan. 1 Balance
July 16		Jan. 19
Dec. 31		Nov. 23
		Dec. 31 Unadjusted Balance
		Dec. 31 Adjusting Entry
		Dec. 31 Adjusted Balance

Bad Debt Expense

Feedback

Learning Objective 4.

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 Â½ of 1% of the sales of $6,630,000 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).
$

Feedback

scarletfly649

Learning Objective 4: Apply GAAP to uncollectible receivables at December 31, 2016, before any year-end adjustments, the Accounts Receivable balance of Haley Travel, Inc., is $400,000. The Allowance for Doubtful Accounts has a $19,600 credit balance. Haley Travel prepares the following aging schedule for Accounts Receivable:

Age of Accounts

Total Balance 1-30 Days 31-60 Days 61-90 Days Over 90 Days

$400,000 $180,000 $120,000 $80,000 $20,000

Estimated uncollectible 0.5% 5.0% 11.0% 50.0%

Requirements:

1. Based on the aging of Accounts Receivable, is the unadjusted balance of the allowance account adequate? Too high? Too low?

2. Make the entry required by the aging schedule. Prepare a T-account for the allowance.

3. Show how Haley Travel will report Accounts Receivable on its December 31 balance sheet

Solution:

	Req. 1




			1-30	31-60	61-90	Over 90	Total
			days	days	days	days	balance

	Est. % uncollectible		x .005	x .05	x .11	x .50
	Bal. in Allow. for Doubtful Accounts should be
	Bal. in Allow. for Doubtful Accounts should be		$ 0	$ 0	$ 0	$ 0	$ -
	Current balance
	Amount needed in adj. entry

	Req. 2
	Journal
	DATE	ACCOUNT TITLES AND EXPLANATION				DEBIT	CREDIT
	Dec. 31
							-



		Allowance for Doubtful Accounts


			Bal.



	Req. 3
	BALANCE SHEET
	Current assets:
		Cash					$ XX
		Short-term investments					XX
		Accounts receivable, net of allowance
		for doubtful accounts of $					*
	Or
	*Another way to report accounts receivable is
		Accounts receivable
		Less: Allowance for doubtful accounts

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ACC 521 Lecture Notes - Lecture 10: Porton, Internal Control, Latvian Mythology

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