P5-66A. (Learning Objective 4: Accounting for revenue, collections, and uncollectibles)

This problem takes you through the accounting for sales, receivables, and uncollectibles for Mail Time Corp., the overnight shipper. By selling on credit, the company cannot expect to collect 100% of its accounts receivable. At May 31, 20X6 and 20X7, respectively, Mail Time Corp. reported the following on its Balance Sheet (in millions of dollars):

During the year ended May 31, 20X7, Mail Time Corp. earned service revenue and collected cash from customers. Assume that Mail Time wrote off uncollectible receivables. At year-end Mail Time ended with the foregoing May 31, 20X7, balances.
Requirements 1. Prepare T-accounts for Accounts Receivable and Allowance for Uncollectibles and insert the May 31, 20X6, balances as given.
2. Journalize the following assumed transactions of Mail Time Corp. for the year ended May 31, 20X7 (explanations are not required):

a. Service revenue on account, $32,491 million

b. Collections from customers on account, $31,779 million

c. Write-offs of uncollectible accounts receivable, $354 million

d. Uncollectible-account expense, $327 million 3. Post your entries to the Accounts Receivable and the Allowance for Uncollectibles T-accounts.
4. Compute the ending balances for the two T-accounts and compare your balances to the actual May 31, 20X7, amounts. They should be the same.
5. Show what Mail Time would report on its Income Statement for the year ended May 31, 20X7.

Transcribed Image Text:

May 31 20X7 20X6 Accounts receivable....... $3,703 $3,345 Less: Allowance for uncollectible accounts... (139) (166) Accounts receivable, net............... $3,564 $3,179