Answer:
The Wild Trout Gallery
1. T-accounts:
Allowance for Doubtful Accounts
Date Account Titles Debit Credit
Jan. 1 Balance $34,200
Dec. 31 Uncollectible Expense 1,700
Dec. 31 Balance $35,900
2. Journal Entry:
Jan. 19:
Debit Accounts Receivable $1,630
Credit Uncollectible Expense $1,630
To reinstate the account of Arlene Gurley written off as uncollectible.
Debit Cash Account $1,630
Credit Accounts Receivable $1,630
To record the receipt of cash from Arlene Gurley.
Apr. 3:
Debit Uncollectible Expense $9,340
Credit Accounts Receivable $9,340
To record the write-off of balance owed by Premier GS Co.
July 16:
Debit Cash $16,800
Debit Uncollectible Expense $50,400
Credit Accounts Receivable $67,200
To record the receipt of 25% of balance and write-off of remaining debt.
Nov. 23:
Debit Accounts Receivable $2,655
Credit Uncollectible Expense $2,655
To reinstate the account of Harry Carr written off as uncollectible.
Debit Cash Account $2,655
Credit Accounts Receivable $2,655
To record the receipt of cash from Harry Carr.
December 31:
Debit Uncollectible Expense $15,990
Credit Accounts Receivable $15,990
To record the write-off of uncollectibles.
Debit Uncollectible Expense $1,700
Credit Allowance for Doubtful Accounts $1,700
To record the estimated uncollectibles.
Dec. 31:
Debit Uncollectible Expense $1,700
Credit Allowance for Doubtful Accounts $1,700
To record the uncollectible expense.
3. Expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry):
Accounts Receivable balance $825,700
Allowance for Doubtful Accounts 35,900
Net realizable value $789,800
4. Allowance for Doubtful Accounts = 0.5% of $5,100,000 = $25,500
a. Bad Debt Expense for the year:
Jan. 19 Reinstatement of written off account -$1,630
Apr. 3 Premier GS Co. write-off 9,340
July 16 Hayden Co. write-off 50,400
Nov. 23 Reinstatement of Harry Carr account -2,655
Dec. 31 Write-off of: Cavey Co., 7,025
Fogle Co., 2,085
Lake Furniture, 5,365
Melinda Shryer, 1,515
Dec. 31 Allowance for Doubtful Accounts -8,700
Amount of bad debt expense $62,745
b. Balance in the allowance account after the adjustment of December 31:
= $25,500
Journal Entry:
Debit Allowance for Doubtful Accounts $8,700
Credit Bad Debts Expense $8,700
To record the reduced allowance for doubtful accounts.
c. Expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry):
Accounts Receivable balance $825,700
Allowance for Doubtful Accounts 25,500
Net realizable value $800,200
Explanation:
a) Data and Calculations:
Hayden Co.:
Cash receipt = $16,800 or 25%
Total balance = $67,200 ($16,800/25%)
Uncollectible write-off = $50,400 ($67,200 * 75%)
b) The allowance for doubtful accounts will be increased by $1,700 to arrive at a new balance of $35,900 from $34,200.
c) If allowance for uncollectible accounts is based on 1/2% of 1% of sales, then the allowance for uncollectible accounts will be reduced by ($34,200 - 25,500) $8,700 from $34,200 to $25,500.