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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 $2,560 cash in full payment of Arlene’s account.
Apr. 3. Wrote off the $14,670 balance owed by Premier GS Co., which is bankrupt.
July 16. Received 25% of the $26,300 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 $4,175 cash in full payment.
Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $11,035 ; Fogle Co., $3,275 ; Lake Furniture, $ 8,420 ; Melinda Shryer, $2,380.
Dec. 31. Based on an analysis of the $1,299,500 of accounts receivable, it was estimated that $56,500 will be uncollectible. Journalized the adjusting entry.
Required:

1. Record the January 1 credit balance of $53,800 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 $1,299,500 balance in accounts receivable reflects the adjustments made during the year.
2. b. Post each entry that affects the following T accounts and determine the new balances:
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 73711efa1fe301a_1
2,290,000

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 ½ of 1% of the sales of $8,020,000 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 (after all of the adjustments and the adjusting entry).

Answer :

anthougo

Using the Allowance Method, the relevant transactions can be completed in the books of Wild Trout Gallery as follows:

1. Allowance for Doubtful Accounts

Accounts                                          Debit       Credit

Jan. 1 Beginning balance                             $53,800

Jan. 19 Accounts Receivable                           2,560

Apr. 3 Accounts Receivable       $14,670

July 16 Accounts Receivable        19,725

Nov. 23 Accounts Receivable                         4,175

Dec. 31 Accounts Receivable       25,110

Dec. 31 Ending balance          $56,500

Dec. 31 Bad Debts Expenses                   $55,470

Totals                                        $116,005  $116,005

Accounts Receivable

Accounts                                          Debit               Credit

Jan. 1 Beginning balance           $2,290,000

Jan. 19 Allowance for Doubtful           2,560

Jan. 19 Cash                                                            $2,560

Apr. 3  Allowance for Doubtful                                14,670

July 16  Allowance for Doubtful                              19,725

July 16  Cash                                                             6,575

Nov. 23  Allowance for Doubtful         4,175

Nov. 23 Cash                                                             4,175

Dec. 31  Allowance for Doubtful                             25,110

Dec. 31   Sales Revenue            8,020,000

Dec. 31   Cash                                               $8,944,420

Dec. 31 Ending balance                                 $1,299,500

Totals                                        $10,316,735 $10,316,735

3. Expected net realizable value of the accounts receivable as of December 31 = $1,243,000 ($1,299,500 - $56,500)

Allowance for Doubtful Accounts ending balance = $40,100 ($8,020,000 x 0.5%)

Allowance for Doubtful Accounts

Accounts                                          Debit       Credit

Jan. 1 Beginning balance                             $53,800

Jan. 19 Accounts Receivable                           2,560

Apr. 3 Accounts Receivable       $14,670

July 16 Accounts Receivable        19,725

Nov. 23 Accounts Receivable                         4,175

Dec. 31 Accounts Receivable       25,110

Dec. 31 Ending balance           $40,100

Dec. 31 Bad Debts Expenses                  $39,070

Totals                                        $99,605   $99,605

4. a. Bad Debt Expense for the year = $39,070

4.b. Balance for Allowance Accounts = $40,100

4.c. Expected net realizable value of the accounts receivable = $1,259,400 ($1,299,500 - $40,100)

Data Analysis:

Jan. 19 Accounts Receivable $2,560 Allowance for Uncollectible Accounts $2,560

Jan. 19 Cash $2,560 Accounts Receivable $2,560

Apr. 3 Allowance for Uncollectible Accounts $14,670 Accounts Receivable $14,670

July 16 Cash $6,575 Allowance for Uncollectible Accounts $19,725 Accounts Receivable $26,300

Nov. 23 Accounts Receivable $4,175 Allowance for Uncollectible Accounts $4,175

Nov. 23 Cash $4,175 Accounts Receivable $4,175

Dec. 31 Allowance for Uncollectible Accounts $25,110 Accounts Receivable $25,110

Accounts Receivable ending balance = $1,299,500

Allowance for Uncollectible Accounts ending balance = $56,500

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