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At the end of the current year, Accounts Receivable has a balance of $3,460,000, Allowance for Doubtful Accounts has a debit balance of $12,500, and sales for the year total $46,300,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $245,000. Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense; and (c) the net realizable value of accounts receivable.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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Section
BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 9, Problem 4PEB
Textbook Problem
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At the end of the current year, Accounts Receivable has a balance of $3,460,000, Allowance for Doubtful Accounts has a debit balance of $12,500, and sales for the year total $46,300,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $245,000.

Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense; and (c) the net realizable value of accounts receivable.

(a)

To determine

Determine the amount of the adjusting entry for uncollectible accounts, under analysis of receivables method.

Explanation of Solution

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.

Allowance method: It is a method for accounting bad debt expense, where amount of uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Two methods to estimate uncollectible accounts under allowance method are:

  1. 1.      Percentage of sales method, and
  2. 2.      Analysis of receivables method.

Analysis of receivables method:

A method of determining the estimated uncollectible receivables based on the age of individual accounts receivable is known as analysis of receivables method. This method is otherwise known as aging of receivables method. Under analysis of receivables method, estimated bad debts would be treated as the desired adjusted balance for allowance for doubtful accounts.

Allowance for doubtful account is a contra asset account, whose normal balance is a credit balance...

(b)

To determine

Determine the adjusted balances of accounts receivable, allowance for doubtful accounts, and bad debt expense.

(c)

To determine

Determine net realizable value of the accounts receivable.

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Chapter 9 Solutions

Financial Accounting
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