Redstone Mill is a manufacturer that makes all sales on 30-day credit terms. Annual sales are approximately

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Redstone Mill is a manufacturer that makes all sales on 30-day credit terms. Annual sales are approximately $40 million. At the end of 2014, accounts receivable were presented in the company's balance sheet as follows:
Accounts receivable from clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,600,000
Less: Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80,000
During 2015, $230,000 of specific accounts receivable were written off as uncollectible. Of these accounts written off, receivables totaling $18,000 were subsequently collected. At the end of 2015, an aging of accounts receivable indicated a need for a $150,000 allowance to cover possible failure to collect the accounts currently outstanding.
Redstone Mill makes adjusting entries for uncollectible accounts only at year-end.
Instructions
a. Prepare the following general journal entries:
1. One entry to summarize all accounts written off against the Allowance for Doubtful Accounts during 2015.
2. Entries to record the $18,000 in accounts receivable that were subsequently collected.
3. The adjusting entry required at December 31, 2015, to increase the Allowance for Doubtful Accounts to $150,000.
b. Notice that the Allowance for Doubtful Accounts was only $80,000 at the end of 2014, but uncollectible accounts during 2015 totaled $212,000 ($230,000 less the $18,000 reinstated). Do these relationships appear reasonable, or was the Allowance for Doubtful Accounts greatly understated at the end of 2014? Explain.
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...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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Financial and Managerial Accounting the basis for business decisions

ISBN: 978-0078025778

17th edition

Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello

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