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Chapter 8: Q3SE (page 466)

Applying the direct write-off method to account for uncollectibles

Shawna Valley is an attorney in Los Angeles. Valley uses the direct write-off method to account for uncollectible receivables.

At April 30, 2018, Valley鈥檚 accounts receivable totaled \(19,000. During May, she earned revenue of \)22,000 on account and collected \(15,000 on account. She also wrote off uncollectible receivables of \)1,100 on May 31, 2018.

Requirements

1. Use the direct write-off method to journalize Valley鈥檚 write-off of the uncollectible receivables.

2. What is Valley鈥檚 balance of Accounts Receivable at May 31, 2018?

Short Answer

Expert verified
DateAccount and explanation
Debit
Credit
2018
May

Accounts receivable- Valley鈥檚

Service Revenue

(Services performed on account)
$ 22,000
$ 22,000
May

Cash

Accounts receivable - Valley鈥檚

(Collected cash on account)
$ 15,000
$15,000
May 31

Bad debts

Accounts receivable - Valley鈥檚

(Wrote off an uncollectible account.)
$1,100
$1,100

Step by step solution

01

Requirement 1: Journalize the transactions for Summer consulting

DateAccount and explanation
Debit
Credit
2018
May

Accounts receivable- Valley鈥檚

Service Revenue

(Services performed on account)
$ 22,000
$ 22,000
May

Cash

Accounts receivable - Valley鈥檚

(Collected cash on account)
$ 15,000
$15,000
May 31

Bad debts

Accounts receivable - Valley鈥檚

(Wrote off an uncollectible account.)
$1,100
$1,100
02

Requirement 2: Valley’s balance of Accounts Receivable

SUBSIDIARY ACCOUNTS

Accounts Receivable鈥擵alley鈥檚

Bal. $19,000
May $22,000
$15,000 May

$1,100 May
Bal. $24,900

Valley鈥檚 balance of Accounts Receivable at May 31, 2018 is $ 24,900

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Most popular questions from this chapter

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?

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鈥檚 transactions that occurred during 2018. The company uses the allowance method.

2. Post Hilltop鈥檚 transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Hilltop鈥檚 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.

What are some benefits to a business in accepting credit cards and debit cards?

When a receivable is written off under the allowance method, how does it affect the net realizable value shown on the balance sheet?
See all solutions

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