Accounting for Receivables

Solve the Following Problems

1. At December 31, 2019, Carls Toys had a balance of $248,100 in its Accounts Receivable account and a credit balance of $900 in its Allowance for Doubtful Accounts account. Carls Toys analyzed and aged its accounts receivable based on the following estimated uncollectible amounts:

Age of Accounts	Receivables Balance	Estimated % Uncollectible
Current	$ 130,500	0.6%
31 to 60 day	66,300	2.0%
61 to 90 days	26,700	5.5%
Over 91 days	24,600	21.0%
Total	$248,100

The company bases its provision for credit losses on the aging analysis.

Required:

(1) What amount of bad debt expense will Carls Toys report in its 2019 income statement? (Round to nearest whole dollar amount.)

(2) How would Accounts Receivable and the Allowance for Doubtful Accounts appear in its December 31, 2019, balance sheet?

2. Malfoys accounts receivable financial data (in millions) for three years are listed below:

	2019	2018	2017
Sales	$159,600	$183,050	$139,300
Gross accounts receivable	4,950	5,460	4,350
Allowance for doubtful accounts	360	300	330

Required:

(1) Calculate the net value of receivables that will be reported on Malfoys balance sheet for each year.

(2) Determine the accounts receivable turnover for 2019 and 2018.

(3) Compare the accounts receivable turnovers for 2019 and 2018 and comment on the differences.

3. DCosta Company uses the allowance method of handling credit losses. It estimates losses at 2% of credit sales, which were $1,800,000 this year. At December 31 of this year, the Accounts Receivable balance is $270,000, and the Allowance for Doubtful Accounts has a $3,600 credit balance before adjustment.

Required:

1. Give the adjusting entry to record bad debts expense for this year.
2. What net amount of accounts receivable would appear on the December 31 balance sheet this year?
3. Assume that DCosta Company uses aged accounts receivable as a basis of estimating credit losses, instead of a percent of credit sales. If the firm estimates that $22,800 of the accounts will prove uncollectible, what adjusting entry would DCosta Company make to record the bad debts expense for this year?

4. On January 1 of the current year, Neptune, Inc. had the following accounts on its books:

Accounts Receivable	$240,000	(debit)
Allowance for Doubtful Accounts	8,000	(credit)

During this year, credit sales were $1,200,000 and collections on account were $1,160,000.

Required:

1. Prepare general journal entries for the following transactions that occurred during the year:

• Wrote off N. Purcells account, $6,800.
• Wrote off J. Steins account, $2,400.
• Stein, who is in bankruptcy, paid $800 in final settlement of the account written off in transaction (2). This amount is not included in the $1,160,000 collections.
• On December 31, estimated the years bad debts expense at 1% of credit sales.