The following transactions were completed by Clark Management Company during the

Question

The following transactions were completed by Clark Management Company during the current fiscal year ended December 31:

July. 5. Received 70% of the $21,000 balance owed by Dockins Co., a bankrupt business, and wrote off the remainder as uncollectible.

Sept. 21. Reinstated the account of Bart Tiffany, which had been written off in the precending year as uncollectible. Journalized the receipt of $4,875 cash in full payment of Tiffany's account.

Oct. 19. Wrote off the $6,275 balance owed by Ski Time Co., which has no assets.

Nov. 6. Reinstated the account of Kirby Co., which had been written off in the preceding year as uncollectable. Journalized the receipt of $4,750 cash in full payment of the account.

Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Maxie Co., $2,150; Kommers Co., $3,600; Helena Distributors, $5,500; Ed Ballantyne, $1,750.

Dec. 31. Based on an analysis of the $815, 240 of accounts receivable, it was estimated that $16,750 will be uncollectible. Journalize the adjusting entry.

1. Reocrd the January 1 credit balance of $12,550 in a T-account for Allowance for Doubtful accounts.

2. Journalize the transactions. Post each entry that affects the following selected T-accounts and determine the new balances:

                                     Allowance for Doubtful Accounts

                                     Bad Debt Expense

3. Determine the expected net realizable value of accounts receivable as of December 31.

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 1/4 of 1% of the net sales of $7,146,000 for the year, determine the following:

      a. Bad debt expense

      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.

Explanation / Answer

1)

July 5. Received 70% of the $21,000 owed by dockins Co. a bankrupt business and wrote off the remainder as uncollectible
Dr Cash 14,700
Dr Allowance for Doubtful Accounts 6,300
Cr Accounts Receivable 21,000
Sept 21.Reinstated the account of Bart Tiffany, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,875 cash in full payment of Tiffany's account.
Dr Accounts Receivable 4,875
Cr Allowance for Doubtful Accounts 4,875

Dr Cash 4,875
Cr Accounts Receivable 4,875
Oct 19. Wrote off the $6,275 balance owed by Ski Time Co. which has no assets.
Dr Allowance for Doubtful Accounts 6,275
Cr Accounts Receivable 6,275
Nov. 6 Reinstated the account of Kirby Co. which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,750 cash in full payment of the account.
Dr Accounts Receivable 4,750
Cr Allowance for Doubtful Accounts 4,750

Dr Cash 4,750
Cr Accounts Receivable 4,750
Dec 31 Wrote off the following accounts as uncollectible (compound entry): Maxie Co. $2,150, Kommers Co. $3,600, Helena Distributors $5,500, Ed Ballantyne $1,750.
Dr Allowance for Doubtful Accounts 13,000
Cr Accounts Receivable 13,000
Dec. 31 Based on an analysis of the $815,240 of accounts receivable, it was estimated that $16,750 will be uncollectible. Journalized the adjusting entry.
Instructions:
Allowance for Doubtful Accounts Started with a credit balance of $12,550. After the above entries have been posted, it now has a credit balance of $9,600. When using percentage of receivables as a basis, the CREDIT balance in the Allowance accounts AFTER the adjustment must equal the amount that is estimated to be uncollectible.
16,750 - 9,600 = 7,150
Cr Bad Debt Expense 7,150
Cr Allowance for Doubtful Accounts 7,150
The Allowance account now has a credit balance of $16,750

3. Determine the expected net realizable value of the accounts receivable as of December 31.
The net realizable value is the Accounts Receivable balance minus the credit balance in the Allowance account.
815,240 - 16,750 = $808,090

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 1/4 of 1% of the net sales of $7,126,000 for the year, determine the following:
When using percentage of sales as a basis, the balance in the Allowance account is ignored.
7,126,000 x 0.0025 = 17,815 amount of adjustment
Dr Bad Debt Expense 17,815
Cr Allowance for Doubtful Accounts 17,815
a. Bad debt expense for the year.
$17,815
b. Balance in the allowance account after the adjustment of December 31.
17,815 + 9,600 current balance = $27,415
c. Expected net realizable value of the accounts receivable as of December 31.
815,240 - 27,415 = $787,825

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