Chapter 5, Problem 5.3BP

1.

To determine

To record: The transactions of engineering M for each date.

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.

Date	Account Title and Explanation		Debit ($)	Credit ($)
February 2,2015	Accounts receivable		38,000
		Service revenue		38,000
	( To record the service  provided on account)
July 23,2015	Cash		27,000
		Accounts receivable		27,000
	( To record the receipt of cash on account)
December 31, 2015	Bad debt expense (2)		2,750
		Allowance for uncollectible accounts		2,750
	( To record the estimation of future bad debts)
April 12, 2016	Accounts receivable		51,000
		Service Revenue		51,000
	( To record the services provided on account)
June 28, 2016	Cash		6,000
		Accounts receivable		6,000
	( To record receipt of cash on account)
September 13, 2016	Allowance for uncollectible accounts		5,000
		Accounts receivable		5,000
	( To record the writing-off of actual bad debts)
October 5, 2016	Cash		45,000
		Accounts receivable		45,000
	( To record the  receipt of cash from customer on account)
December 31, 2016	Bad debt expense (5)		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, 2015:

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on February 2, 2015}-\\ \text{Received cash from customers on account on July 23, 2015}\end{array}\right]\\ =\$38,000-\$27,000\\ =\$11,000\end{array}$ (1)

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{estimate percentage of uncollectible account}\end{array}\right]\\ =\$11000(1)\times 25\%\\ =\$2,750\end{array}$ (2)

Calculate Estimate future bad debts On December 31, 2016:

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on April 12, 2016}-\\ \text{Received cash from customers on account on June 28, 2016}\end{array}\right]\\ =\$51,000-\$6,000\\ =\$45,000\end{array}$ (3)

$\begin{array}{c}\left[\begin{array}{l}\text{Balance in allowance for }\\ \text{uncollectible accounts after write off}\end{array}\right]\text{=}\left[\begin{array}{l}\text{Allowance for uncollectible accounts on }\\ \text{December 31,2015}-\\ \text{Write-off actual bad debts on September 13, 2016}\end{array}\right]\\ =\$2,750-\$5,000\\ \text{Debit balance}=(\$2,250)\end{array}$ (4)

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{Estimated Percentage of uncollectible accounts}+\\ \text{balance in allowance for uncollectible }\\ \text{account after written off}\end{array}\right]\\ =\$6000(3)\times 25\%+\$2,250(4)\\ =\$3,750\end{array}$ (5)

2.

To determine

To 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 2015:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
July 23,2015	Accounts receivable	$27,000
December 31, 2015	Balance (Balancing figure)	$27000

Table (2)

For 2016:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
January 1, 2016	Beginning balance	$27,000
June 28, 2016	Accounts receivable	$6,000
October 5, 2016	Accounts receivable	$45,000
December 31, 2016	Balance (balancing figure)	$78,000

Table (3)

For 2015:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
February 2, 2015	Service revenue	$38,000	July 23,2015	Cash	$27000
December 31, 2015	Balance (Balancing figure)	$11,000

Table (4)

For 2016:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
April 12, 2016	Service revenue	$51,000	June 28, 2016	Cash	$6,000
			September 13, 2016	Allowance for uncollectible accounts	$5,000
			October 5, 2016	Cash	45,000
December 31, 2016	Balance (balancing figure)	$6,000

Table (5)

For 2015:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
			December 31, 2015	Bad debt expense	$2,750

Table (6)

For 2016:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
September 13, 2016	Accounts receivable	$5,000	December 31, 2016	Bad debt expense	$3,750
			December 31, 2016	Balance (balancing figure)	$1,500

Table (7)

3.

To determine

To Calculate: The net realizable value of accounts receivable at the end of 2015 and 2016.

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.

Calculate the net realizable value of accounts receivable at the end of 2015 and 2016:

Years	2015	2016
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 2015 is $ 8,250 and for the year 2016 is $ 4,500.