At the Beginning of the Year: Midway Brewing and Distilling Company's post closing trial balance on December 31, 2012 (in other words, at the beginning of 2013) reflects the following balances:Debit Accounts receivable $300,000
Credit Allowance for doubtful accounts $35,000
During the Year 2013: Sales for 2013 were $5,500,000.
All sales were sales on account. At the end of each month during 2013, Bobby Bookkeeper posted a journal entry recording bad debt expense for an amount equal to .75% (three quarters of one percent) of monthly sales, using the percentage of sales method. During 2013 collections of accounts receivable were $4,300,000.
A. Provide a journal entry to summarize all 12 of the monthly journal entries posted by the Bobby Bookkeeper during 2013 to record bad debt expense.
B. Provide a journal entry to summarize all the collections of accounts receivable during 2013. At the End of the Year:
C. What is the amount of accounts receivable on December 31, 2013 according to the general ledger? D. What is the amount of the allowance for doubtful accounts as of December 31, 2013? Receivables are Analyzed and Write offs are taken On January 3, 2014, Andy Auditor arrives on the scene and asks to see an aging schedule of the accounts receivable as of December 31, 2013. Bobby 10% of the Bookkeeper provides an aging schedule showing that: receivables are older than 60 days, 20% of the receivables are more than 30 but less than 60 days 70% of the receivables were 30 days old or less. old, and
E. .Prepare a replica of Bobby's aging schedule using an excel spreadsheet. Upon analysis of the $300,000 of accounts receivable, Andy sees: Invoice # M45987 dated December 15, 2013 in the amount of $10,000, receivable from Denny Hecker, who is in prison for 30 years after his multi-million fraud. And Invoice #C98785 dated March 2, 2013 in the amount of $20,000 receivable from Trevor Cook who is in prison serving a 150 year term for fraud. Andy and Bobby discuss these invoices and decide they should be written off as of December 31, 2013. F. Prepare a revised aging schedule reflecting the write offs of the Hecker and Cook accounts.
G. Provide the journal entry that Bobby will post to write off these accounts. Andy and Bobby decide that of the remaining accounts receivable (after the write-offs taken in E above) 1% of the receivables that are not past due should be estimated as uncollectible, 5 % of the receivables that are past due but less than 61 days old should be estimated as uncollectible, and 50% of the receivables that are more than 60 days past due should be estimated as uncollectible
H. Prepare another revised aging schedule showing the amount of each class of receivables (by age) to be included in the allowance for doubtful accounts (after the write offs of the Hecker and Cook accounts).
I. Provide the journal entry that Andy will instruct Bobby to post to adjust bad debt expense and the allowance for doubtful accounts as of December 31, 2013