Chapter 8, Problem 8.3E

(a)

To determine

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.

To Prepare: The journal entries for recording the sales and collections made during the period.

Answer to Problem 8.3E

Prepare the following journal entries in the books of Corporation R to record the sales and collections of the period.

Date	Account Title and Explanation	Debit	Credit
	Accounts Receivable	$800,000
	Sales Revenue		$800,000
	(To record the sale on account
	Cash	$763,000
	Account receivable		$763,000
	(To record the collection of cash on account)

Table (1)

Explanation of Solution

Sale on account increases accounts receivable and sales revenue account by $800,000. Hence, an increase in accounts receivable (asset account) is debited with $800,000 and increase in sales revenue (stockholders’ equity account) is credited with $800,000.

Collection of cash on account, increases cash and decreases accounts receivable by $763,000. Hence, an increase in cash (asset account) is debited and a decrease in accounts receivable (asset account) is credited with $763,000.

(b)

To determine

To Prepare: The journal entry to write-off the uncollectible accounts during the period.

Answer to Problem 8.3E

Prepare the following journal entry in the books of Corporation R to write-off the uncollectible accounts during the period.

Date	Account Title and Explanation	Debit	Credit
	Allowance for doubtful account	$7,300
	Account receivable		$7,300
	(To record write-off of uncollectible account receivable )

Table (2)

Explanation of Solution

To record this write-off, both allowance for doubtful accounts and accounts must be decreased by $7,300. Hence, a decrease in allowance for doubtful accounts (contra asset account) is debited with $7,300, and a decrease in accounts receivable (asset account) is credited with $7,300.

(c)

To determine

To Prepare: The journal entries to record the recovery of the uncollectible account during the period.

Answer to Problem 8.3E

Prepare the following journal entries in the books of Corporation R to record the recovery of the uncollectible account during the period.

Date	Account Title and Explanation	Debit	Credit
	Accounts Receivable	$3,100
	Allowance for Doubtful Accounts		$3,100
	(To reverse write off of $3,100 receivables)
	Cash	$3,100
	Account receivable		$3,100
	(To record the collection of cash on account)

Table (3)

Explanation of Solution

Corporation R received $3,100 uncollectible, which is previously written off in the same year. Hence, Corporation R reverses the entry, which is previously made to write off the receivables. Hence, accounts receivable is debited to increase its balance by $3,100, and allowance for doubtful accounts is credited to increase its balance by $3,100.

Now, the collection of cash on account, increases cash and decreases accounts receivable by $3,100. Hence, an increase in cash (asset account) is debited and a decrease in accounts receivable (asset account) is credited with $3,100.

(d)

To determine

To Prepare: The journal entry to record the bad debt expenses for the period.

Answer to Problem 8.3E

Prepare the following journal entry in the books of Corporation R to record the bad debt expenses for the period.

Date	Account Title and Explanation	Debit	Credit
	Bad debt expense	$20,200
	Allowance for doubtful accounts		$20,200
	(To record the bad debt expenses of the period)

Table (4)

Working note:

Prepare T-account for allowance for doubtful account.

Allowance for doubtful accounts

Particulars	Debit	Particulars	Credit
Accounts receivable	$7,300	Beginning balance	$9,000
		Accounts receivable	$3,100
		Bad debts (Balancing figure)	$20,200
Total	$7,300	Total	$32,300
		Ending balance	$25,000

Table (5)

Explanation of Solution

It is given that Corporation R’s estimated uncollectible account at the end of the period is $25,000. Hence, to determine bad debt expense of the year and to adjust the allowance for doubtful accounts, T-account is prepared. It is identified that bad debt expenses of the year is $20,200.

Bad debt expense of the year and allowance for doubtful accounts must be increased by $20,200. Therefore, bad debt expense is debited to increase its balance by $20,200, and allowance for doubtful account is credited to increase its balance by $20,200.

(e)

To determine

The ending balances in accounts receivable and allowance for doubtful accounts.

Answer to Problem 8.3E

Prepare T-account to determine the ending balances of accounts receivable and allowance for doubtful accounts.

Allowance for doubtful accounts:

Allowance for doubtful accounts
Particulars	Debit	Particulars	Credit
Accounts receivable	$7,300	Beginning balance	$9,000
		Accounts receivable	$3,100
		Bad debts	$20,200
Total	$7,300	Total	$32,300
		Ending balance	$25,000

Table (6)

Accounts receivable:

Accounts receivable
Particulars	Debit	Particulars	Credit
Opening balance	$200,000	Cash	$763,000
Sales revenue	$800,000	Allowance for doubtful accounts	$7,300
Allowance for doubtful accounts	$3,100	Cash	$3,100
Total	$1,003,100	Total	$773,400
Ending balance	$299,700

Table (7)

Hence, the ending balance in accounts receivable and allowance for doubtful accounts is $25,000 and $299,700 respectively.

Explanation of Solution

Accounts receivable normal balance is debit balance, therefore debit increases Accounts receivable account balance and a credit decreases Accounts receivable account balance. Difference between $32,300 of total credit side balance and $7,300 of total debit side balance resulted in $25,000 ending balance.

Allowance for doubtful accounts normal balance is credit balance, therefore debit decreases Allowance for doubtful accounts balance and a credit increases Allowance for doubtful accounts balance. Difference between $1,003,100 of total debit side balance and $773,400 of total credit side balance resulted in $299,700 ending balance.

Conclusion

Hence, the ending balance in accounts receivable and allowance for doubtful accounts is $25,000 and $299,700 respectively.

(f)

To determine

To calculate: The net realizable value of the receivables at the end of the period.

Answer to Problem 8.3E

Determine the net realizable value of the receivables at the end of the period.

$\begin{array}{c}\begin{array}{l}\text{Net realizable value of the}\\ \text{receivables at the end of the period}\end{array}\}=\left[\begin{array}{l}\text{Accounts receivable }-\text{Allowance}\\ \text{for doubtful accounts}\end{array}\right]\\ =\$229,700-\$25,000\\ =\$204,700\end{array}$

Hence, the net realizable value of the receivables at the end of the period is $204,700.

Explanation of Solution

Net realizable value of the receivables at the end of the period is determined by deducting ending balance of allowance for doubtful accounts from the ending balance of accounts receivable.

Conclusion

Hence, the net realizable value of the receivables at the end of the period is $204,700