The following information pertains to Leslie’s floor store sales on account and
ID: 2388188 • Letter: T
Question
The following information pertains to Leslie’s floor store sales on account and accounts receivable.
Accounts receivable balance, January 1, 2012 $ 52,500.00
Allowance for doubtful accounts, January 1, 2012 $ 4,725
Sales on account, 2012 $ 925,000
Cost of goods sold, 2012 $ 615,000
Collections on accounts receivable, 2012 $ 835, 000
After several collections attempts, Leslie’s wrote off $3,100 of accounts that could not be collected Leslie’s estimates that bad debt expense will be 0.5 percent of sales on account.
A. Compute the following amounts.
(1) Using the allowance method, the amount of uncollectible accounts expense for 2012.
(2) Net realizable value of receivables at the end of 2012
B. Explain why the uncollectible accounts expense amount is different from the amount that was written off.
Explanation / Answer
Accounts receivable balance, January 1, 2012: $52,500 Allowance for doubtful accounts, January 1, 2012: 4,725 Sales on account, 2012: 925,000 *Cost of goods sold, 2012: 615,000 Collections of accounts receivable, 2012: 835,000 *Note: Cost of goods sold was put in just to confuse you. It has no bearing on this problem. After several collection attempts, Leslie’s wrote off $3,100 of accounts that could not be collected. This would be the journal entry: Dr Allowance for Doubtful Accounts 3,100 Cr Accounts Receivable 3,100 A. Compute the following amounts. 1.) using the allowance method, the amount of uncollectable accounts expense for 2012. Leslie estimates that bad debts expense will be 0.5 percent of sales on account Sales on account, 2012: 925,000 x 0.005 (it's the same as 0.5%) = $4,625 Uncollectible accounts expense for 2012 Journal entry would be: Dr Bad Debt Expense 4,625 Cr Allowance for Doubtful Accounts 4,625 *Note: After this adjustment plus the the previous write-off, the credit balance in Allowance for Doubtful Accounts is now 4,725 - 3,100 + 4,625 = 6,250 2.) Net realizable value of receivables at the end of 2012. 52,500 Beginning Accounts Receivable Balance + 925,000 Sales on Account - 835,000 Collections of Accounts Receivable - 3,100 Accounts Written Off = 139,400 Gross Value of Accounts Receivable - 6,250 Credit Balance in Allowance for Doubtful Accounts = $133,150 Net Realizable Balance of Accounts Receivable at the end of 2012. B. Explain why the uncollectable accounts expense amount is different from the amount that was written off as uncollectible. Under the allowance method of estimating uncollectible accounts, the expense (4,625) is what is ESTIMATED to be uncollectible, while the amount that was written off (3,100) is what was actually determined to be uncollectible. If the credit balance of Allowance for Doubtful Accounts becomes to large, an adjustment should be made to lower the percentage that is estimated to be uncollectible.
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