At December 31, 2013, Dustin Company reported this information on its balance sh
ID: 2445271 • Letter: A
Question
At December 31, 2013, Dustin Company reported this information on its balance sheet.
Accounts receivable............ $960,000
Less: Allowance for doubtful accounts.... 78,000
During 2014, the company had the following transactions related to receivables.
1. Sales on account.................. $3,600,000
2. Sales returns and allowances............. 150,000
3. Collections of accounts receivable............ 3,100,000
4. Write-offs of accounts receivable deemed uncollectible... 92,000
5. Recovery of bad debts previously written off as uncollectible.. 28,000
Instructions (a) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable. (Omit cost of goods sold entries.)
(b) Enter the January 1, 2014, balances in Accounts Receivable and Allowance for Doubtful Accounts, post the entries to the two accounts (use T-accounts), and determine the balances.
(c) Prepare the journal entry to record bad debt expense for 2014, assuming that aging the accounts receivable indicates that expected bad debts are $140,000.
(d) Compute the accounts receivable turnover and average collection period.
Explanation / Answer
Journal entries:
1) Sales on account:
Accounts receivables a/c Dr $3,600,000
To Sales revenue a/c Cr $3,600,000
( Being sales on credit recorded in the books of account)
2) Sales returns and allowances:
Sales return a/c Dr $150,000
To Accounts receivable Cr $150,000
(Being the sales return for sales made on credit recorded in the books of accounts)
3) Collections of accounts receivable:
Cash a/c Dr $3,100,000
To Accounts receivable a/c Cr $3,100,000
( Being cash collected from debtors for sales made on credit recorded in the books of account)
4) Write-offs of accounts receivable:
Bad debts Expense a/c Dr $92,000
To Accounts receivables Cr $92,000
( Being bad debts recorded in the books of accounts)
5) Recovery of Bad debts:
Cash a/c Dr $28,000
To Bad debt recovered a/c Cr $28,000
( Being cash recovered that was earlier classified as bad debt)
Answer for point b):
Answer for subpoint c)
Allowance for Baddebts expense a/c Dr $140,000
To Allowance for doubtful a/c Cr $140,000
( Being provision for doubtful debts made in the books of accounts)
Answer for subpoint d)
Accounts receivable turnover ratio = Net credit sales/Average accounts receivable
Net credit sales = Credit sales - Sales returns allowances
=$3,600,000 - $150,000 = $3,450,000
Average accounts receivable =($960,000+$1,280,000)/2 =$1,120,000
Substitutig the values in the above formula =$3,450,000/$1,120,000 =3.0803
Average collection period = Number of days in a year/Accounts receivable turnover ratio
=365/3.0803 =118.49 it means average collection period = 118 days.
Accounts receivable account Date Particulars Amount Date Particulars Amount 1/1/2014 Opening balance b/f $960,000 XX/XX/XXXX By Cash a/c $3,100,000.00 XX/XX/XXXX To Sales revenue a/c $3,600,000 XX/XX/XXXX By Sales returns a/c $150,000.00 XX/XX/XXXX By Bad debts a/c $92,000.00 31/12/2014 By balance c/f $1,218,000.00 Total $4,560,000 Total $4,560,000.00Related Questions
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