Accounting for Assets: Receivables

Slow Running Shoes uses the Aging of receivables method to account for uncollectible accounts.

o The balance in the Allowance for uncollectible account as at Jan 1st, 2010 was $10,500 (credit)

o The balance in the Accounts Receivable account as at Jan 1st, 2010 was $133,000.

The company completed the following transactions during 2010 and 2011:

2010

June 10th Wrote off the balance of $600 from Manny Millers account as uncollectible

September 15th Re-instated the account of Betty Lou and recorded the collection of $1200 as payment in full for her account which had been written off earlier

December 31st Recorded the uncollectible account expense based on the aging schedule. The schedule showed that $14,100 of accounts receivable was estimated as uncollectible

December 31st Made the closing entry for the uncollectible expense account

2011

Jan 17 Sold inventory to Jack Frost, $1100, on account

August 15 Wrote off as uncollectible the accounts of Barry Semper, $1,500; Maria Jesus $1,400 and Rory Paul $200

September 26 Received 40% of the amount owed by Jack Frost and wrote off the remainder as uncollectible

October 16 Received 20% of the funds owed from Maria Jesus as part payment of her account which had been written off earlier as uncollectible

December 31 The Aging schedule showed an estimated $7500 as uncollectible

Required:

1. Prepare journal entries for each transaction (No narrations required)

2. Prepare the Allowance for Uncollectible and the Accounts Receivable accounts based on the information presented and balance off each account.

3. Prepare the balance sheet extracts as at Dec 31 2010 & 2011 to show the net realizable value for the Accounts Receivable.

4. Assume that the percentage of sales method was used instead by the company and that on December 31st, 2010 5% of 2010 s credit sales are estimated to be uncollectible. Assume Sales for 2010 were 520,000 (60% relates to cash sales)

You are now required to:

a. Determine the amount to be charged to the uncollectible expense account.

b. (1) Prepare the Allowance for uncollectible account for 2010, using this method

(ii) Prepare the balance sheet extract to show the net realizable value of the Accounts Receivable as at December 31 2010