Company sells products to its cusotmers on credit basis, adjusting entry for bad debt expense is recorded at Dec 31.  The 2017 bs disclosed: Current assets: receivables, net of allowance for uncollectible accounts of $50,000  $532,000.  During 2018, credit sales were $1,850,000, cash collections from customers were $1,930,000, and $59,000 in accounts receivable were written off.  In addition, $5,000 was collected from a customer whose account was written off in 2017.  An again of accounts receivable at Dec 31, 2018 reveals the following: Age group      % of year end receivables in group    % uncollible      0-60 days                           65%                                       4%61-90 days                           15%                                      10%91-120 days                         15%                                       30%Over 120 days                      5%                                          50%#1.  Prepare summary journal entries to account for the 2018 write off and the collection of the receivable previously written off.#2.  Prepare the year end adjsuting entry for bad debts accoridng to each of the following situations:     a.  Bad debt expense is estimated to be 3% of credit sales for the year.     b.  Bad debt expense is estimated by computing net realizable value of the receivables.  The allowance for uncollectible accounts is estimated to be 10% of the year end balance in accounts receivable.#3.  For situations (a) -(b) in requirement 2 above, what would be the net amount of accounts receivable in the 2018 balance sheet?Could you please show me how to do this?  Thanks.

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Asked Oct 24, 2019
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Company sells products to its cusotmers on credit basis, adjusting entry for bad debt expense is recorded at Dec 31.  The 2017 bs disclosed: Current assets: receivables, net of allowance for uncollectible accounts of $50,000  $532,000.  During 2018, credit sales were $1,850,000, cash collections from customers were $1,930,000, and $59,000 in accounts receivable were written off.  In addition, $5,000 was collected from a customer whose account was written off in 2017.  An again of accounts receivable at Dec 31, 2018 reveals the following: 

Age group      % of year end receivables in group    % uncollible    

  0-60 days                           65%                                       4%

61-90 days                           15%                                      10%

91-120 days                         15%                                       30%

Over 120 days                      5%                                          50%

#1.  Prepare summary journal entries to account for the 2018 write off and the collection of the receivable previously written off.

#2.  Prepare the year end adjsuting entry for bad debts accoridng to each of the following situations:

     a.  Bad debt expense is estimated to be 3% of credit sales for the year.

     b.  Bad debt expense is estimated by computing net realizable value of the receivables.  The allowance for uncollectible accounts is estimated to be 10% of the year end balance in accounts receivable.

#3.  For situations (a) -(b) in requirement 2 above, what would be the net amount of accounts receivable in the 2018 balance sheet?

Could you please show me how to do this?  Thanks.                  

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Expert Answer

Step 1

Bad Debts Expense:

Bad debts expense as also known as uncollectible account expense or doubtful account expense. Bad debts expense results because a company delivered goods or service on credit and the customer did not pay the amount owed. Bad debts expenses is related to a company’s current asset account receivable.

Step 2
  1. Following are the Journal entries to account for the 2018 write-off’s and the collection of the receivable previously written off:

 

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Journal Entries S. No Account Title and Explanation Amount Amount Debit Credit Allowance for uncollectible Accounts Debit To Account Receivable (Being to record account written off) $59,000 a. $59,000 Account Receivable Account Debit b. $5,000 To Allowance for uncollectible Accounts $5,000 (Being to record accounts written off) Cash Account Debit $5,000 To Account Receivable Account $5,000 (Being to record cash collection)

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Step 3

2.   Following are the preparation of ye...

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Journal Entries S. No Account Title and Explanation Amount Amount Debit Credit Bad debt Expense Account Debit $55,500 а. ($1,850,000 x 3%) $55,500 To Allowance for uncollectible accounts (Being to record the bad debt expenses) b. Bad debt Expense Account Debit (Note: 1) $43,300 $43,300 To Allowance for uncollectible accounts (Being to record the bad debt expenses) Note: 1 ($532,000 $1,850, 000 $50,000 Bad Debt Expenses $1,930,000 $59,000) -$59,000 x10% +$5,000 =$43,300

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