Answer:
1. Does this situation describe a loss contingency?
Yes, the situation reflect the necessity of report a loss contingency because the it's needed to cover the 3% of Allowance for Uncollectible Accounts
2. What is the bad debt expense that Manda Panda should report in its 2018 income statement? $11.325
3. Prepare the appropriate journal entry to record the contingency.
Please see explanation section.
4. Complete the table below to calculate the net realizable value Manda Panda should report in its 2018 balance sheet?
Explanation:
The entry to reflect the bad expenses of the contingency:
Bad debt expense $ 11.325
Allowance for Uncollectible Accounts $ 11.325
Net Realizable Value is:
Accounts Receivable $ 507.500
Allowance for Uncollectible Accounts $ 15.225
Net Realizable Value $ 492.275
Initial Balance
Accounts Receivable $ 507.500 End 2018
Allowance for Uncollectible Accounts - $ 92.400 Beginning 2018
Entry when $88,500 in receivables were determined to be uncollectible.
Allowance for Uncollectible Accounts $ 88.500
Accounts Receivable $ 88.500
(Keep in mind that the balance of Acc Rec is at the end of 2018, so this entry had already been registered.)
New Balance
Accounts Receivable $ 507.500 End 2018
Allowance for Uncollectible Accounts $ 3.900 End 2018
Bad debt expense $ 11.325 to complete the 3%
Allowance for Uncollectible Accounts $ 11.325
New Balance
Accounts Receivable $ 507.500
Allowance for Uncollectible Accounts $ 15.225 3%
Net Realizable Value $ 492.275
