Ortiz Automotive ended December 2012 with Accounts Receivable of $20,000 and Allowance for Doubtful Accounts of $5,900.

Question:

Ortiz Automotive ended December 2012 with Accounts Receivable of $20,000 and Allowance for Doubtful Accounts of $5,900. During January 2013, Ortiz Automotive completed the following transactions:

• Sales of $260,000, which included $160,000 in credit sales and $100,000 of cash sales.

• Cash collections on account, $54,000.

• Write-offs of uncollectible receivables, $2,500.

• Bad debt expense estimated as 4% of credit sales.

Requirements

1. Prepare journal entries to record sales, collections, write-offs of un-collectibles, and Bad Debt Expense by the percentage-of-sales method.

2. Calculate the ending balances in Accounts Receivable, Allowance for Doubtful Accounts, and net Accounts Receivable at January 31. How much does Ortiz Automotive expect to collect?

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...