Problem 5-1: Accounting for Uncollectible Receivables

The Solo Company was started on January 1, 2011. The following events occurred during 2011 and 2012.

2011

1. Provided $4,000 of services on account.

2. Collected $3,000 cash from accounts receivable.

3. Estimated uncollectible accounts expense to be 1.5 percent of 2011 credit sales.

2012

1. Wrote off $40 of accounts receivable that were deemed uncollectible.

2. Provided $6,500 of services on account.

3. Collected $5,400 cash from accounts receivable.

4. Received $5 from a bad debt that had been previously written off. Reinstated the account.

5. Recorded the $5 cash received from the receivable reinstated in Event No. 4.

6. Estimated uncollectible accounts expense to be 1 percent of 2012 credit sales.

Required a. Record the events in a statements model under the titles of the affected accounts. Record a zero under each heading not affected by a given event.

b. Determine the net realizable value of accounts receivable at the end of each year.