The following transactions were completed by Interia Management Company during the current fiscal year ended December 31:
Feb. 24. Received 40% of the $18,000 balance owed by Broudy Co., a bankrupt business, and wrote off the remainder as uncollectible.
May 3. Reinstated the account of Irma Alonso, which had been written off in the preceding year as uncollectible. Journalized the receipt of $1,725 cash in full payment of Alonso’s account.
Aug. 9. Wrote off the $3,600 balance owed by Tux Time Co., which has no assets.
Nov. 20. Reinstated the account of Pexis Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $6,140 cash in full payment of the account.
Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Siena Co., $2,400; Kommers Co., $1,800; Butte Distributors, $6,000; Ed Ballantyne, $1,750.
31. Based on an analysis of the $768,375 of accounts receivable, it was estimated that $18,000 will be uncollectible. Journalized the adjusting entry.
Instructions
1. Record the January 1 credit balance of $15,500 in a T account for Allowance for Doubtful Accounts.
2. Journalize the transactions. Post each entry that affects the following selected T accounts and determine the new balances:
Allowance for Doubtful Accounts
Bad Debt Expense
3. Determine the expected net realizable value of the accounts receivable as of
December 31.
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 1/2 of 1% of the net sales of $4,100,000 for the year, determine the following:
a. Bad debt expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.