4Effect of recovering a receivable previously written off LO5-1, 5-2
The accounts receivable balance for Donâs Shoe Repair atDecember 31, 2014, was $87,000. Also on that date, the balance inAllowance for Doubtful Accounts was $3,000. During 2015, $2,300 ofaccounts receivable were written off as uncollectible. In addition,Donâs Shoe Repair unexpectedly collected $130 of receivables thathad been written off in a previous accounting period. Sales onaccount during 2015 were $218,000, and cash collections fromreceivables were $220,000. Uncollectible accounts expense wasestimated to be 1 percent of the sales on account for the period.Also on that date, the balance in Allowance for Doubtful Accountswas $3,000 and the balance in Retained Earnings was $84,000.
Required
a
Organize the information in accounts under an accountingequation. (Show effect on the accounting equation in theorder provided in the question. Enter any decreases to accountbalances with a minus sign. Select "NA" if there is no effect onthe "Accounts Titles for Retained Earnings".)
HORIZONTAL STATEMENTS MODEL
Cash + Accounts Receivable - Allowance = Liabilities + Equity orRetained Earning = Accounts title for Retained Earning
Bal.
1.
2a
2b
3
4
5
b.
Based on the preceding information, compute (after year-endadjustment):
(1) Balance of Allowance forDoubtful Accounts at December 31, 2015. (2) Balance of AccountsReceivable at December 31, 2015. (3) Net realizable value ofAccounts Receivable at December 31, 2015. ALLOWANCE FROM DOUBTFUL ACCOUNTS ( )
ACCOUNTS RECEIVABLE ( )
NET REALIZED VALUE( )
c. What amount of uncollectible accounts expense will Donâs ShoeRepair report for 2015?
UNCOLLECTIBLE ACCONTS EXPENSE ( )
4Effect of recovering a receivable previously written off LO5-1, 5-2
The accounts receivable balance for Donâs Shoe Repair atDecember 31, 2014, was $87,000. Also on that date, the balance inAllowance for Doubtful Accounts was $3,000. During 2015, $2,300 ofaccounts receivable were written off as uncollectible. In addition,Donâs Shoe Repair unexpectedly collected $130 of receivables thathad been written off in a previous accounting period. Sales onaccount during 2015 were $218,000, and cash collections fromreceivables were $220,000. Uncollectible accounts expense wasestimated to be 1 percent of the sales on account for the period.Also on that date, the balance in Allowance for Doubtful Accountswas $3,000 and the balance in Retained Earnings was $84,000. |
| Required |
a | Organize the information in accounts under an accountingequation. (Show effect on the accounting equation in theorder provided in the question. Enter any decreases to accountbalances with a minus sign. Select "NA" if there is no effect onthe "Accounts Titles for Retained Earnings".) HORIZONTAL STATEMENTS MODEL Cash + Accounts Receivable - Allowance = Liabilities + Equity orRetained Earning = Accounts title for Retained Earning | ||||||||||||
| Bal. 1. 2a 2b 3 4 5 |
|
Related questions
4 Effect of recovering a receivable previously written off
The accounts receivable balance for Donâs Shoe Repair atDecember 31, 2014, was $87,000. Also on that date, the balance inAllowance for Doubtful Accounts was $3,000. During 2015, $2,300 ofaccounts receivable were written off as uncollectible. In addition,Donâs Shoe Repair unexpectedly collected $130 of receivables thathad been written off in a previous accounting period. Sales onaccount during 2015 were $218,000, and cash collections fromreceivables were $220,000. Uncollectible accounts expense wasestimated to be 1 percent of the sales on account for the period.Also on that date, the balance in Allowance for Doubtful Accountswas $3,000 and the balance in Retained Earnings was $84,000.
| Required |
| a. | Organize the information in accounts under an accountingequation. (Show effect on the accounting equation in theorder provided in the question. Enter any decreases to accountbalances with a minus sign. Select "NA" if there is no effect onthe "Accounts Titles for Retained Earnings".) Cash + Accounts Receivable - Allowance = Liabilities +Equity/Retained Earnings Accounts Titles for Retained Earnings 1 2a 2b 3 4 5 |
| b Based on the precedinginformation, compute (after year-end adjustment): | |
| (1) Balance of Allowance forDoubtful Accounts at December 31, 2015. | |
| (2) Balance of AccountsReceivable at December 31, 2015. | |
| (3) Net realizable value ofAccounts Receivable at December 31, 2015. |
|
SK Limited is a merchandising company based in Australia and adopts the allowance method for doubtful accounts. The statement of financial position (balance sheet) at 31 December 2015 showed a credit balance of $58,000 in Allowance for Uncollectible Accounts. During the year ended 31 December 2016, the following transactions occurred:
| Date | Transaction |
| 2016 | |
| 12 January | Sold goods to Jeff Wong for $32,000 with one-month credit |
| 20 January | Received payment from Alice Lee relating to her 30-day, 9% note for $9,000 that fell due for payment on this date. An accrual had been made for the interest earned up to 31 December 2015. |
| 12 February | Accepted a 60-day, 6% note for $32,000 from an existing debtor, Jeff Wong |
| 5 April | Wrote off an outstanding debt of $5,000 owed by Andrew Ha who was untraceable |
| 12 April | Payment was duly received from Jeff Wong upon the maturity of the note signed on 12 February. |
| 23 May | Received payment of $5,000 from Andrew Ha which had been written off on 5 April |
| 30 July | Sold goods to Joey Lee by accepting a 90-day, 6% note for $13,000 |
| 30 October | The note dated 30 July from Joey Lee was dishonoured and returned by the bank. |
| 15 December | Wrote off the amount owed by Joey Lee as it was proved to be irrecoverable |
| 18 December | Sold goods to Mary Ma by accepting a 60-day, 5% note for $30,000 |
| 31 December | Recorded the accrued interest on the note from Mary Ma |
Required
a) Prepare journal entries to record the transactions during the year ended 31 December 2016. Use a 360-day year when performing interest calculations and round the interest to one decimal place.
b) After reviewing an aged list of accounts receivable at 31 December 2016, the credit manager of the company estimated an amount of $50,000 would become uncollectible. Prepare the allowance for doubtful accounts for the year ended 31 December 2016 (in T-account format).
c) Discuss why the allowance method of accounting for uncollectible accounts is better to match revenue and expense.
Music-Is-Us, Inc., is a supplier of musical instruments for professional and amateur musicians. The companyâs accountants make adjusting entries monthly, and they make all closing entries annually. The company is growing rapidly and prides itself on having no long-term liabilities.
The company has provided the following trial balance dated December 31, 2018.
| MUSIC-IS-US, INC. | |||||||
| TRIAL BALANCE | |||||||
| DECEMBER 31, 2018 | |||||||
| Cash | $ | 45,000 | |||||
| Marketable securities | 26,000 | ||||||
| Accounts receivable | 130,000 | ||||||
| Allowance for doubtful accounts | $ | 5,100 | |||||
| Merchandise inventory | 256,000 | ||||||
| Office supplies | 1,900 | ||||||
| Prepaid insurance | 7,040 | ||||||
| Building and fixtures | 1,794,000 | ||||||
| Accumulated depreciation | 797,000 | ||||||
| Land | 66,800 | ||||||
| Accounts payable | 69,000 | ||||||
| Unearned customer deposits | 7,800 | ||||||
| Income taxes payable | 75,000 | ||||||
| Capital stock | 960,000 | ||||||
| Retained earnings | 238,200 | ||||||
| Unrealized holding gain on investments | 5,100 | ||||||
| Sales | 1,651,340 | ||||||
| Cost of goods sold | 953,000 | ||||||
| Bank service charges | 200 | ||||||
| Uncollectible accounts expense | 8,300 | ||||||
| Salary and wages expense | 392,000 | ||||||
| Office supplies expense | 300 | ||||||
| Insurance expense | 6,000 | ||||||
| Utilities expense | 3,000 | ||||||
| Depreciation expense | 44,000 | ||||||
| Income tax expense | 75,000 | ||||||
| $ | 3,808,540 | $ | 3,808,540 | ||||
Other information pertaining to the companyâs trial balance is provided as follows.
1. The most recent bank statement reports a balance of $47,175. Included with the bank statement was a $2,400 check from Iggy Smarts, a professional musician, charged back to Music-Is-Us as NSF. The bankâs monthly service charge was $25. Three checks written by Music-Is-Us to suppliers of merchandise inventory had not yet cleared the bank for payment as of the statement date. These checks included: no. 508, $4,100; no. 511, $9,400; and no. 521, $7,900. Deposits of $16,800 reached the bank too late for inclusion in the current bank statement. The company prepares a bank reconciliation at the end of each month.
2. Music-Is-Us has a portfolio of marketable securities that originally cost $20,000. As of December 31, the market value of these securities was $28,800. All short-term investments are classified as "available for sale."
3. During December, $6,100 of accounts receivable were written off as uncollectible. A recent aging of the company's accounts receivable led management to conclude that an allowance for doubtful accounts of $8,200 is needed at December 31, 2018.
4. The company uses a perpetual inventory system. A year-end physical count revealed that several guitars reported in the inventory records were missing. The cost of the missing units amounted to $1,300. This amount is not considered significant relative to the total cost of inventory on hand.
5. At December 31, approximately $830 in office supplies remained on hand.
6. The company pays for its insurance policies 12 months in advance. Its most recent payment was made on November 1, 2018. The cost of this policy was slightly higher than the cost of coverage for the previous 12 months.
7. Depreciation expense related to the company's building and fixtures is $4,000 for the month ending December 31, 2018.
8. Although Music-Is-Us carries an extensive inventory, it is not uncommon for experienced musicians to order custom guitars made to their exact specifications. Manufacturers do not allow any sales returns of custom-made guitars. The entire sales amount is collected at the time a custom order is placed, and is credited to an account entitled âUnearned Customer Deposits.â As of December 31, $4,000 of these deposits remained unfilled because the special-order guitars have not been received from the manufacturer. The cost of goods sold and the reduction in inventory associated with all custom orders is recorded when the custom merchandise is delivered to customers. At that time, the adjusting entry requires only a decrease to unearned customer deposits and an increase in sales.
9. Accrued income taxes payable for the entire year ending December 31, 2018, total $81,000. No income tax payments are due until early in 2019.
Please Prepare:
A Bank Reconciliation
Journal Entries
Adjusting Entries
