Allowance method entries

The following transactions were completed by Wild Trout Gallery during the current fiscal year ended December 31:

Jan. 19.	Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalized the receipt of $1,635 cash in full payment of Arlenes account.
Apr. 3.	Wrote off the $9,370 balance owed by Premier GS Co., which is bankrupt.
July 16.	Received 35% of the $16,800 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible.
Nov. 23.	Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $2,665 cash in full payment.
Dec. 31.	Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $7,045 ; Fogle Co., $2,095 ; Lake Furniture, $ 5,380 ; Melinda Shryer, $1,520.
Dec. 31.	Based on an analysis of the $828,000 of accounts receivable, it was estimated that $36,000 will be uncollectible. Journalized the adjusting entry.

Required:

1. Record the January 1 credit balance of $34,300 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts.

2. a. Journalize the transactions. If an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the $828,000 balance in accounts receivable reflects the adjustments made during the year.

Jan. 19	Accounts Receivable-Arlene Gurley	fill in the blank 89ea82fccf9efed_2	fill in the blank 89ea82fccf9efed_3
	Allowance for Doubtful Accounts	fill in the blank 89ea82fccf9efed_5	fill in the blank 89ea82fccf9efed_6
Jan. 19	Cash	fill in the blank 89ea82fccf9efed_8	fill in the blank 89ea82fccf9efed_9
	Accounts Receivable-Arlene Gurley	fill in the blank 89ea82fccf9efed_11	fill in the blank 89ea82fccf9efed_12
Apr. 3		fill in the blank 89ea82fccf9efed_14	fill in the blank 89ea82fccf9efed_15
		fill in the blank 89ea82fccf9efed_17	fill in the blank 89ea82fccf9efed_18
July 16		fill in the blank 89ea82fccf9efed_20	fill in the blank 89ea82fccf9efed_21
		fill in the blank 89ea82fccf9efed_23	fill in the blank 89ea82fccf9efed_24
		fill in the blank 89ea82fccf9efed_26	fill in the blank 89ea82fccf9efed_27
Nov. 23		fill in the blank 89ea82fccf9efed_29	fill in the blank 89ea82fccf9efed_30
		fill in the blank 89ea82fccf9efed_32	fill in the blank 89ea82fccf9efed_33
Nov. 23		fill in the blank 89ea82fccf9efed_35	fill in the blank 89ea82fccf9efed_36
		fill in the blank 89ea82fccf9efed_38	fill in the blank 89ea82fccf9efed_39
Dec. 31		fill in the blank 89ea82fccf9efed_41	fill in the blank 89ea82fccf9efed_42
		fill in the blank 89ea82fccf9efed_44	fill in the blank 89ea82fccf9efed_45
		fill in the blank 89ea82fccf9efed_47	fill in the blank 89ea82fccf9efed_48
		fill in the blank 89ea82fccf9efed_50	fill in the blank 89ea82fccf9efed_51
		fill in the blank 89ea82fccf9efed_53	fill in the blank 89ea82fccf9efed_54
Dec. 31		fill in the blank 89ea82fccf9efed_56	fill in the blank 89ea82fccf9efed_57
		fill in the blank 89ea82fccf9efed_59	fill in the blank 89ea82fccf9efed_60

Feedback

Set up T accounts. Recall that under the allowance method, the entry to write off an account debits Allowance for Doubtful Accounts and credits Accounts Receivable. In such cases where an account receivable that has been written off is later collected, the account is reinstated by an entry that reverses the write-off entry. Then record the receipt of cash as payment for the account. The amount of bad debt expense is affected by the balance in the allowance account.

2. b. Post each entry that affects the following T accounts and determine the new balances:

Allowance for Doubtful Accounts
	fill in the blank b6652203df9f019_2	Jan. 1 Balance	fill in the blank b6652203df9f019_3
	fill in the blank b6652203df9f019_5		fill in the blank b6652203df9f019_7
	fill in the blank b6652203df9f019_9		fill in the blank b6652203df9f019_11
			fill in the blank b6652203df9f019_13
			fill in the blank b6652203df9f019_15
		Dec. 31 Adjusted Balance	fill in the blank b6652203df9f019_16

Bad Debt Expense
	fill in the blank b6652203df9f019_18

Feedback

Set up T accounts. Recall that under the allowance method, the entry to write off an account debits Allowance for Doubtful Accounts and credits Accounts Receivable. In such cases where an account receivable that has been written off is later collected, the account is reinstated by an entry that reverses the write-off entry. Then record the receipt of cash as payment for the account. The amount of bad debt expense is affected by the balance in the allowance account.

3. Determine the expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry). $fill in the blank 55853cff0fa603b_1

4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of of 1% of the sales of $5,110,000 for the year, determine the following:

a. Bad debt expense for the year. $fill in the blank 55853cff0fa603b_2

b. Balance in the allowance account after the adjustment of December 31. $fill in the blank 55853cff0fa603b_3

c. Expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry). $fill in the blank 55853cff0fa603b_4

Feedback

Remember that net realizable value is the amount that is expected to be collected or realized.

The analysis of receivables method places more emphasis on the net realizable value of the receivables and, thus, emphasizes the balance sheet. That is, the amount of the adjusting entry is the amount that will yield an adjusted balance for Allowance for Doubtful Accounts equal to that estimated by the aging schedule.

The analysis of receivables method is based on the assumption that the longer an account receivable is outstanding the less likely that it will be collected.