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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Aging Accounts Receivable On September 30. 2019 (the end of its fiscal year), Lufkin Corporation reported accounts receivable of $331,750 and an allowance for doubtful accounts of $16,700. During fiscal 2020, the following transactions occurred:

Chapter 6, Problem 7P, Aging Accounts Receivable On September 30. 2019 (the end of its fiscal year), Lufkin Corporation , example  1

On September 30, 2020, an aging of the accounts receivable balance indicated the following:

Chapter 6, Problem 7P, Aging Accounts Receivable On September 30. 2019 (the end of its fiscal year), Lufkin Corporation , example  2

Required:

  1. 1. Prepare the journal entries necessary to record the credit sales, collections on account, write-off of accounts receivable, and bad debts expense for Lufkin for fiscal 2020.
  2. 2. What are Lufkin’s September 30, 2020, balances in Accounts Receivable and in its Allowance for Doubtful Accounts, and how will they be disclosed on the September 30, 2020, balance sheet?
  3. 3. Next Loci Compute Lufkin’s receivables turnover in days, assuming a 365-day business war. What is your evaluation of its collection policies?

1.

To determine

Record the journal entries to record the “credit sales”, “collections on account”, “Write-off of accounts receivable and bad debts expense.

Explanation

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Bad debt expense:

Bad debt expense is an expense account. Amount of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, estimated uncollectible accounts receivable are known as bad debt expense. To match the revenues and expenses, bad debts (loss on extending credit) are recorded as expenses.

DateAccount Title and ExplanationDebitCredit
 Accounts receivable$2,017,800 
      Sales revenue $2,017,800
 (To record the sale on credit)  

Table (1)

  • An increase in accounts receivable (asset) is debited with $2,017,800.
  • An increase in sales revenue (increases stockholders’ equity) is credited with $$2,017,800.
DateAccount Title and ExplanationDebitCredit
 Cash$1,956,000 
      Accounts receivable $1,956,000
 (To record the collection on account)  

Table (2)

  • An increase in cash (asset) is debited with $1,956,000.
  • A decrease in accounts receivable (asset) is credited with $1,956,000.
DateAccount Title and ExplanationDebitCredit
 Allowance for doubtful accounts$16,200 
      Accounts receivable $16,200
 (To record accounts receivables written- off)  

Table (3)

  • A decrease in allowance for doubtful accounts (contra-asset account) is debited with $16,200.
  • A decrease in accounts receivable (asset) is credited with $16,200.
DateAccount Title and ExplanationDebitCredit
September 30Bad debt expense (1)$16,579 
      Allowance for doubtful accounts $16,579
 (To record the bad debt expenses of the period)  

Table (4)

  • An increase in bad debt expense (decrease in stockholders’ equity account) is debited with $16,579...

2.

To determine

Identify the balances in accounts receivable and allowance for doubtful accounts for Corporation L and state the way in which, it will be disclosed on the September 30,2020 balance sheet.

3.

To determine

Calculate the receivables turnover in days and explain regarding the evaluation of its collection policies.

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