The following transactions were completed by The Irvine Company during the curre

Question

The following transactions were completed by The Irvine Company during the current fiscal year ended December 31: Feb. 8 Received 35% of the $18,100 balance owed by Decoy Co., a bankrupt business, and wrote off the remainder as uncollectible Reinstated the account of Seth Nelsen, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,300 cash in full payment of Seth's account Wrote off the $6,350 balance owed by Kat Tracks Co., which has no assets Reinstated the account of Crawford Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,865 cash in full payment of the account. Wrote off the following accounts as uncollectible (compound entry): Newbauer Co., $7,105; Bonneville Co., $5,435; Crow Distributors, $9,390; Fiber Optics, $1,075 Based on an analysis of the $1,796,000 of accounts receivable, it was estimated that $35,920 will be uncollectible. Journalized the adjusting entry May 27 Aug. 13 Oct. 31 Dec. 31 Dec. 31 Required: 1. Record the January 1 credit balance of $26,080 in a T account for Allowance for Doubtful Accounts 2. A. Journalize the transactions. For the December 31 adjusting entry, assume the $1,796,000 balance in accounts receivable reflects the adjustments made during the year. Refer to the chart of accounts for a listing of the account titles the company uses B. Post each entry that affects the following selected T accounts and determine the new balances: Allowance for Doubtful Accounts and Bad Debt Expense 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 ¼ of 1% of the net sales of $18,260,000 for the year, determine the following 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.

Explanation / Answer

The Irwine Company (All amounts in $) 1 Allowance for doubtful debts account Debit Credit 01-Jan Balance b/d 26080 2. General Journal 08-Feb Cash (35% of 18100) Debit 12250 Accounts Receivable-Decoy Co. Credit 12250 ( Cash received from bankrupt company) Bad debt expense Debit 5750 Accounts Receivable-Decoy Co. Credit 5750 (Bad debt written off) 27-May Accounts Receivable - Seth Nelsen Debit 7300 Bad debt expense Credit 7300 (Reinstatement of account of Seth Nelsen previously written off) Cash Debit 7300 Accounts Receivable - Seth Nelsen Credit 7300 (Cash received in full and final settlement of Seth Nelsen's account) 13-Aug Bad debt expense Debit 6350 Kat Tracks Co. Credit 6350 (Balance of bankrupt debtor written off) 31-Oct Crawford Co. Debit 3865 Bad debt expense Credit 3865 (Reinstatement of account of Crawford Co. previously written off) Cash Debit 3865 Crawford Co. Credit 3865 (Balance of account received in full and final settlement) 31-Dec Bad debt expense Debit 23005 Accounts Receivable - Newbauer Co. Credit 7105 Accounts Receivable - Bonneville Co. Credit 5435 Accounts Receivable - Cow Distributors Credit 9390 Accounts Receivable - Fiber Optics Credit 1075 (Uncollectible accounts written off) 31-Dec Bad debt expense Debit 35920 Allowance for doubtful debts Credit 35920 (Provision for uncollectible accounts) 31-Dec Allowance for doubtful debts account Debit 33780 Bad debt expense Credit 33780 (Amount transferred from Allowance to Bad debt expense) Bad Debt workings: Debits Credits 35920 3865 23005 7300 6350 5750 71025 11165 59860 Allowance made during the year 33780 less net bad debt expense (current year) 59860 New balance of allowance 26080 3. Net realisable value of accounts receivable Book value 1796000 less Allowance for uncollectible accounts -26080 1769920 4. Bad debt epense for the year (new basis) Net sales 18260000 A. Estimated bad debt expense 45650 Balance in the allowance account (working below) B. Allowance made during the year 33780 less Estimated net bad debt expense 45650 New balance 11870 C. Expected net realisable value of Accounts Receivable Book value 1796000 less Allowance for uncollectible accounts -11870 Net realisable value 1784130

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