Question
The bookkeeper of Vital Inc. has asked you to assist him with &*^^^% the preparation of information about the company's accounts receivable for presentation in
The bookkeeper of Vital Inc. has asked you to assist him with &*^^^% the preparation of information about the
company's accounts receivable for presentation in the statement of financial position at December 31,
2018, the end of the company's fiscal year. The following details have been extracted from the company's
files:
Debit Accounts receivable, January 1, 2018 $500,000
Credit Allowance for doubtful accounts, January 1, 2018 $25,000
Sales for 2018 totalled $1,300,000; $300,000 were in cash and the rest on account. The company
collected $1,100,000 from credit customers during 2018 and wrote off $30,000 of accounts receivable as
uncollectible.
Required:
1.
Determine the balance of accounts receivable at December 31, 2018.
2.
Vital estimates that 6 percent of the ending balance of its accounts receivable may not be collected
in the future. Prepare the journal entries to record the write-off of accounts receivable and the bad
debt expense for 2018.
3.
Show how the information related to accounts receivable is presented on the company's statement
of financial position as at December 31, 2018.
4.
After you finished helping the bookkeeper with the journal entries and the statement of financial
position presentation, he said, "These calculations seem to be complicated. Would it not be
simpler to treat the $30,000 as bad debt expense when the company is certain that the customers
are not able to pay the amount owed? That way, you record the exact amount of bad debt when it
happens, and you do not have to estimate an amount of doubtful accounts and risk being
incorrect." Prepare response to the bookkeeper.
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