Chapter 5, Problem 3PB

1.

To determine

Prepare the transactions of engineering M for each date.

Explanation of Solution

Date	Account Title and Explanation		Debit ($)	Credit ($)
February 2,2021	Accounts receivable		38,000
		Service revenue		38,000
	( To record the service  provided on account)
July 23,2021	Cash		27,000
		Accounts receivable		27,000
	( To record the receipt of cash on account)
December 31, 2021	Bad debt expense (1)		2,750
		Allowance for uncollectible accounts		2,750
	( To record the estimation of future bad debts)
April 12, 2022	Accounts receivable		51,000
		Service Revenue		51,000
	( To record the services provided on account)
June 28, 2022	Cash		6,000
		Accounts receivable		6,000
	( To record receipt of cash on account)
September 13, 2022	Allowance for uncollectible accounts		5,000
		Accounts receivable		5,000
	( To record the writing-off of actual bad debts)
October 5, 2022	Cash (4)		45,000
		Accounts receivable		45,000
	( To record the  receipt of cash from customer on account)
December 31, 2022	Bad debt expense (3)		3,750
		Allowance for uncollectible accounts		3,750
	( To record the estimation of future bad debts)

Table (1)

Working notes:

Calculate Estimate future bad debts On December 31, 2021:

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{estimate percentage of uncollectible account}\end{array}\right]\\ =\$11000(2)\times 25\%\\ =\$2,750\end{array}$

(1)

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on February 2, 2021}-\\ \text{Received cash from customers on account on July 23, 2021}\end{array}\right]\\ =\$38,000-\$27,000\\ =\$11,000\end{array}$

(2)

Calculate Estimate future bad debts On December 31, 2022:

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{Estimated Percentage of uncollectible accounts}+\\ \text{balance in allowance for uncollectible }\\ \text{account after written off}\end{array}\right]\\ =\$6,000(3)\times 25\%+\$2,250(5)\\ =\$3,750\end{array}$

(3)

Calculate the value of accounts receivable:

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on April 12, 2022}-\\ \text{Received cash from customers on account on June 28, 2022}\end{array}\right]\\ =\$51,000-\$6,000\\ =\$45,000\end{array}$

(4)

Calculate the balance in allowance for uncollectible accounts after written off:

$\begin{array}{c}\left[\begin{array}{l}\text{Balance in allowance for }\\ \text{uncollectible accounts after write off}\end{array}\right]\text{=}\left[\begin{array}{l}\text{Allowance for uncollectible accounts on }\\ \text{December 31,2021}-\\ \text{Write-off actual bad debts on September 13, 2022}\end{array}\right]\\ =\$2,750-\$5,000\\ =(\$2,250)\end{array}$

(5)

2.

To determine

Post transactions to the following accounts: Cash, Accounts receivable, and Allowance for uncollectible accounts.

Explanation of Solution

Accounts receivable:

Accounts receivable is an asset of the firm, which refers to the amount which the company would receive in near future for the goods or services provided; hence it is shown in the balance sheet.

For 2021:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
July 23,2021	Accounts receivable	$27,000
December 31, 2021	Balance (Balancing figure)	$27000

Table (2)

For 2022:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
January 1, 2022	Beginning balance	$27,000
June 28, 2022	Accounts receivable	$6,000
October 5, 2022	Accounts receivable	$45,000
December 31, 2022	Balance (balancing figure)	$78,000

Table (3)

For 2021:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
February 2, 2021	Service revenue	$38,000	July 23,2021	Cash	$27000
December 31, 2021	Balance (Balancing figure)	$11,000

Table (4)

For 2022:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
April 12, 2022	Service revenue	$51,000	June 28, 2022	Cash	$6,000
			September 13, 2022	Allowance for uncollectible accounts	$5,000
			October 5, 2022	Cash	45,000
December 31, 2022	Balance (balancing figure)	$6,000

Table (5)

For 2021:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
			December 31, 2021	Bad debt expense	$2,750

Table (6)

For 2022:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
September 13, 2022	Accounts receivable	$5,000	December 31, 2022	Bad debt expense	$3,750
			December 31, 2022	Balance (balancing figure)	$1,500

Table (7)

3.

To determine

Calculate the net realizable value of accounts receivable at the end of 2021 and 2022.

Explanation of Solution

Calculate the net realizable value of accounts receivable at the end of 2021 and 2022:

Years	2021	2022
Total accounts receivable	$11,000	$6,000
Less: Allowance for uncollectible accounts	($2,750)	($1,500)
Net realizable value	$8,250	$4,500

Table (8)

Conclusion

Hence, the net realizable value of Engineering M for the year 2021 is $ 8,250 and for the year 2022 is $ 4,500.