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Chapter 8: Q20E (page 471)

Accounting for uncollectible accounts using the allowance method (aging-of-receivables) and reporting receivables on the balance sheet.

At December 31, 2018, the Accounts Receivable balance of GPS Technology is \(200,000. The Allowance for Bad Debts account has a \)24,110 debit balance. GPS Technology prepares the following aging schedule for its accounts receivable:

Age of Accounts

1鈥�30 Days

31鈥�60 Days

61鈥�90 Days

Over 90 Days

Accounts Receivable

\( 65,000

\) 50,000

\(40,000

\)45,000

Estimated percent uncollectible

0.4%

3.0%

5.0%

48.0%

Requirement:

1. Journalize the year-end adjusting entry for bad debts on the basis of the aging schedule. Show the T-account for the Allowance for Bad Debts at December 31, 2018.

2. Show how GPS Technology will report its net accounts receivable on its December 31, 2018, balance sheet

Short Answer

Expert verified
  1. Journal entry and T account is recorded in Step 2.
  2. The net realizable value is $174,640.

Step by step solution

01

Definition of bad-debt expense

The bad debt expense refers to the outstanding amount from the customers end, which remains uncollectible.

02

Journalizing of bad-debt expense and preparation of T-Account

Bad-Debt鈥夆赌�Expense=Target鈥夆赌�Balance+Unadjusted鈥�Balance=(($65,000脳0.4%)+($50,000脳3%)+($40,000脳5%)+($45,000脳48%))+$24,110=($260+$1,500+$2,000+$21,600)+$24,110=$25,360+$24,110=$49,470

Date

Particulars

Debit

Credit

Bad Debts

$49,470

Allowance for Bad Debts

$49,470

(Being entry to record bad debts expense)


Allowance for Bad Debts

Balance

$24,110

$49,470

Adjustments

$25,360

Ending Balance

03

Calculation of net realizable value

GPS Technology

Partial Balance Sheet

As of December, 2018

Accounts Receivable

$200,000

Less: Allowance for Bad Debts

($25,360)

Net Realizable Value

$174,640

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Most popular questions from this chapter

Lovett Company reported the following selected items at March 31, 2018 (last year鈥檚鈥�2017鈥攁mounts also given as needed):

Accounts Payable \( 128,000 Accounts Receivable, net:

Cash 104,000 March 31, 2018 \) 108,000

Merchandise Inventory: March 31, 2017 68,000

March 31, 2018 116,000 Cost of Goods Sold 460,000

March 31, 2017 80,000 Short-term Investments 56,000

Net Credit Sales Revenue 1,168,000 Other Current Assets 48,000

Long-term Assets 168,000 Other Current Liabilities 72,000

Long-term Liabilities 52,000

14. Compute Lovett鈥檚 (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days鈥� sales in receivables as of

March 31, 2018.

On August 1, Taylor Company lent $80,000 to L. King on a 90-day, 5% note.

12. Journalize for Taylor Company the lending of the money on August 1.

13. Journalize the collection of the principal and interest at maturity. Specify the date. Round interest to the nearest dollar.

Delta Watches completed the following selected transactions during 2018

and 2019:2018

Dec. 31 Estimated that bad debts expense for the year was 2% of credit sales of

\(450,000 and recorded that amount as expense. The company uses the

allowance method.

31 Made the closing entry for bad debts expense.

2019

Jan. 17 Sold merchandise inventory to Mack Smith, \)400, on account. Ignore Cost of

Goods Sold.

Jun. 29 Wrote off Mack Smith鈥檚 account as uncollectible after repeated efforts to

collect from him.

Aug. 6 Received \(400 from Mack Smith, along with a letter apologizing for being so

late. Reinstated Smith鈥檚 account in full and recorded the cash receipt.

Dec. 31 Made a compound entry to write off the following accounts as uncollectible:

Cam Carter, \)1,400; Mike Venture, \(1,200; and Russell Reeves, \)400.

31 Estimated that bad debts expense for the year was 2% on credit sales of

\(510,000 and recorded the expense.

31 Made the closing entry for bad debts expense.

Requirements

1. Open T-accounts for Allowance for Bad Debts and Bad Debts Expense, assuming

the accounts begin with a zero balance. Record the transactions in the general journal

(omit explanations), and post to the two T-accounts.

2. Assume the December 31, 2019, balance of Accounts Receivable is \)136,000.

Show how net accounts receivable would be reported on the balance sheet at

that date.

Johnson Company uses the allowance method to account for uncollectible receivables. On September 2, Johnson wrote off a

\(14,000 account receivable from customer J. Mraz. On December 12, Johnson unexpectedly received full payment from Mraz on

the previously written off account. Johnson records an adjusting entry for bad debts expense of \)800 on December 31.

9. Journalize Johnson鈥檚 write-off of the uncollectible receivable.

10. Journalize Johnson鈥檚 collection of the previously written off receivable.

11. Journalize Johnson鈥檚 adjustment for bad debts expense.

What is the expense account associated with the cost of uncollectible receivables called?
See all solutions

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