ACC 100 Chapter Notes - Chapter 7: Financial Statement, Accounts Receivable, Current Liability
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| 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
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.
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 ½ 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
The following selected transactions were taken from the recordsof Shipway Company for the first year of its operations endingDecember 31:
| Apr. 13 | Wrote off account of Dean Sheppard, $5,190. | ||||||||||
| May 15 | Received $2,600 as partial payment on the $6,900 account of DanPyle. Wrote off the remaining balance as uncollectible. | ||||||||||
| July 27 | Received $5,190 from Dean Sheppard, whose account had beenwritten off on April 13. Reinstated the account and recorded thecash receipt. | ||||||||||
| Dec. 31 | Wrote off the following accounts as uncollectible (record asone journal entry): | ||||||||||
| |||||||||||
| Dec. 31 | If necessary, record the year-end adjusting entry for theuncollectible accounts. |
For those amount boxes in which no entry is required, leave thebox blank. If an entry is not required, select "No entry" from thedropdown box(es).
a. Journalize the transactions under the directwrite-off method.
| Apr. 13 | Bad Debt Expense | ||
| Accounts Receivable-DeanSheppard | |||
| May 15 | Cash | ||
| Bad Debt Expense | |||
| Accounts Receivable-DanPyle | |||
| July 27-reinstate | Accounts Receivable-DeanSheppard | ||
| Bad Debt Expense | |||
| July 27-collection | Cash | ||
| Accounts Receivable-DeanSheppard | |||
| Dec. 31-write-off | Bad Debt Expense | ||
| Accounts Receivable-PaulChapman | |||
| Accounts Receivable-DuaneDeRosa | |||
| Accounts Receivable-TeresaGalloway | |||
| Accounts Receivable-ErnieKlatt | |||
| Accounts Receivable-MartyRichey | |||
| Dec. 31-adjusting | No entry | ||
| No entry |
b. Shipway Company uses the percent of creditsales method of estimating uncollectible accounts expense. Based onpast history and industry averages, 2% of credit sales are expectedto be uncollectible. Shipway Company recorded $1,266,500 of creditsales during the year.
Journalize the transactions under the allowance method.
| Apr. 13 | Allowance for DoubtfulAccounts | ||
| Accounts Receivable-DeanSheppard | |||
| May 15 | Cash | ||
| Allowance for DoubtfulAccounts | |||
| Accounts Receivable-DanPyle | |||
| July 27-reinstate | Accounts Receivable-DeanSheppard | ||
| Allowance for DoubtfulAccounts | |||
| July 27-collection | Cash | ||
| Accounts Receivable-DeanSheppard | |||
| Dec. 31-write-off | Allowance for DoubtfulAccounts | ||
| Accounts Receivable-PaulChapman | |||
| Accounts Receivable-DuaneDeRosa | |||
| Accounts Receivable-TeresaGalloway | |||
| Accounts Receivable-ErnieKlatt | |||
| Accounts Receivable-MartyRichey | |||
| Dec. 31-adjusting | Bad Debt Expense | ||
| Allowance for DoubtfulAccounts |
Feedback
Remember that under the direct write-off method, Bad DebtExpense is not recorded until the customer's account is determinedto be worthless.
Under the allowance method once a customer account is identifiedas uncollectible, it is written off against the allowanceaccount.
Learning Objective 5.
c. How much higher (lower) would ShipwayCompany's net income have been under the direct write-off methodthan under the allowance method?
