PR 9-1A Entries related to uncollectible accounts

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

Feb.  17. Received 25% of the $30,000 balance owed by Gillespie Co., a bankrupt business, and wrote off the remainder as uncollectible.
Apr.  11. Reinstated the account of Colleen Bertram, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,250 cash in full payment of Colleen’s account.
July  6. Wrote off the $9,000 balance owed by Covered Wagon Co., which has no assets.
Nov. 20. Reinstated the account of Dugan Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $5,900 cash in full payment of the account.
Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Kipp Co., $3,000; Moore Co., $4,000; Butte Distributors, $8,000; Parker Towers, $6,700.
         31. Based on an analysis of the $1,200,000 of accounts receivable, it was estimated that $60,000 will be uncollectible. Journalized the adjusting entry.
Instructions
1. Record the January 1 credit balance of $40,000 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 the 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 ¾ of 1% of the net sales of $7,500,000 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.

Answer:
2. 20—
Feb. 17
Cash...................................................................... 7,500    
Allowance for Doubtful Accounts....................... 22,500      
                  Accounts Receivable—Gillespie Co. ...........  30,000

Apr. 11
Accounts Receivable—Colleen Bertram............ 4,250      
                  Allowance for Doubtful Accounts.................  4,250    
         11
Cash...................................................................... 4,250      
                  Accounts Receivable—Colleen Bertram.......  4,250

July 6
Allowance for Doubtful Accounts....................... 9,000      
                 Accounts Receivable—Covered Wagon Co.   9,000

Nov. 20
Accounts Receivable—Dugan Co. ..................... 5,900      
                 Allowance for Doubtful Accounts.................  5,900    

         20
Cash...................................................................... 5,900      
                 Accounts Receivable—Dugan Co. ...............  5,900

Dec. 31
Allowance for Doubtful Accounts....................... 21,700      
                 Accounts Receivable—Kipp Co. ..................  3,000      
                 Accounts Receivable—Moore Co. ................  4,000      
                 Accounts Receivable—Butte Distributors....  8,000      
                 Accounts Receivable—Parker Towers .........  6,700    

31
Bad Debt Expense................................................ 63,050      
                 Allowance for Doubtful Accounts.................  63,050      
                     Uncollectible accounts estimate.        
                         ($60,000 + $3,050)

1. and 2.

Allowance for Doubtful Accounts Feb. 17  22,500 Jan. 1 Balance 40,000 July 6  9,000 Apr. 11  4,250 Dec. 31  21,700 Nov. 20  5,900 Dec. 31 Unadjusted Balance 3,050  Dec. 31 Adjusting Entry 63,050 Dec. 31 Adj. Balance 60,000    Bad Debt Expense Dec. 31 Adjusting Entry 63,050  

3. $1,140,000 ($1,200,000 – $60,000)
4.
a. $56,250 ($7,500,000 × 0.0075)
b. $53,200 ($56,250 – $3,050)
c. $1,146,800 ($1,200,000 – $53,200)