91Ó°ÊÓ

At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:

a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.

b. Collections on account, \)135,000.

c. Write-offs of uncollectible receivables, $2,300.

Requirements

1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.

2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 3% of credit sales. Post the adjustment to the appropriate T-accounts.

4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet.

Step by step solution

01

Definition of accounts receivable

The accounts receivable means the amount that is being received by the company. This amount is received from the debtors of the company.

02

Step 2: (1) Journalizing the transactions

Date	Particulars	Debit	Credit
	Accounts Receivables	$164,000
	Sales Revenue		$164,000
	(Sold goods on account)
	Cash	$21,000
	Sales Revenue		$21,000
	(Being goods sold in cash)
	Cash	$135,000
	Accounts Receivables		$135,000
	(Collected cash on account.)
	Allowance for Bad Debts	$2,300
	Accounts Receivables		$2,300
	(uncollectible receivables written off.)

03

(2) Posting of transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

Accounts Receivable
Balance	$28,000	$135,000	Sales
Collections	$164,000	$ 2,300
Bal.	$54,700

Allowance for Bad Debts
Write-off	$2,300	Balance	$3,000
		Balance	$700

04

(3) Journal entry and T accounts.

$\begin{array}{c}\mathbf{Bad}\mathbf{-}\mathbf{Debts}\mathbf{=}\mathbf{Accounts}\text{ â¶Ä‰}\mathbf{Receivable}\mathbf{×}\text{ }\mathbf{Percentage}\text{ â¶Ä‰}\mathbf{of}\text{ â¶Ä‰}\mathbf{Bad}\text{ â¶Ä‰}\mathbf{Debts}\mathbf{-}\mathbf{Unadjusted}\text{ â¶Ä‰}\mathbf{Balance}\text{ â¶Ä‰}\\ \mathbf{=}\mathbf{\$}\mathbf{164}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{3}\mathbf{\%}−\mathbf{\$}\mathbf{700}\\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{920}−\mathbf{\$}\mathbf{700}\\ =\$4,220\end{array}$

Date	Particulars	Debit	Credit
	Bad Debts Expense	$4,220
	Allowance for Bad Debts		$4,220
	(Being entry to record bad debts expense)

Allowance for Bad Debts
Write off	$2,300	Bal.	$3,000
		Unadjusted Balance	700
		Adjustment	$4,220
		Balance	$4,920

05

(4) Reporting of net accounts receivable on December 31, 2018

±Ê²¹°ù³Ù¾±³¦³Ü±ô²¹°ù’s	As of December 2018
Accounts Receivable	$54,700
Less: Allowance for Bad Debts	($4,920)
Net Realizable Value	$49,780

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