Accounting for Receivables exercises

1) José Sign Company uses the allowance method in accounting for uncollectible
accounts. Past experience indicates that 1.5% of net credit sales will eventually
be uncollectible. Selected account balances at December 31, 2001, and December
31, 2002, appear below:

12/31/01 12/31/02
Net Credit Sales $400,000 $500,000
Accounts Receivable 75,000 100,000
Allowance for Doubtful Accounts 5,000 ?

Instructions
(a) Record the following events in 2002.
Aug. 10 assume that the account of Soo Tang for $1,000 is uncollectible.
Sept. 12 assume that the account of Jeff Lynch for $4,000 is uncollectible.
Oct. 10 Received a cheque for $550 as payment on account from Soo Tang,
whose account had previously been written off as uncollectible. She
indicated the remainder of her account would be paid in November.
Nov. 15 Received a cheque for $450 from Soo Tang as payment on her
account.

(b) Prepare the adjusting journal entry to record the bad debt provision for the year
ended December 31, 2002.

(c) What is the balance of Allowance for Doubtful Accounts at December 31, 2002?

Solution 1
previously .. Dec 31/01
Bad Debts Expense ($400,000*1.5%) 6,000
Allowance for Doubtful Accounts 6,000

(a) Aug. 10 Allowance for Doubtful Accounts ............................... 1,000

Accounts Receivable—name............................... 1,000
To write off account.

Sept. 12 Allowance for Doubtful Accounts ............................... 4,000

Accounts Receivable—name2 ............................ 4,000
To write off account.

Oct. 10 Accounts Receivable—name ....................................... 1,000

Allowance for Doubtful Accounts ...................... 1,000
 To reinstate account previously
written off.
Cash .............................................................................. 550
Accounts Receivable—name .............................. 550
To record collection on account.

Nov. 15 Cash .............................................................................. 450

Accounts Receivable—name .............................. 450
To record collection on account.

(b) Dec. 31 Bad Debts Expense ($500,000 × 1.5%) ....................... 7,500

Allowance for Doubtful Accounts ...................... 7,500
To record estimate of uncollectible accounts.

(c) Balance of Allowance for Doubtful Accounts at December 31, 2002, is $9,500
($6,000 – $1,000 – $4,000 + $1,000 + $7,500).

2) At the end of 2008, Davis Co. has accounts receivable of $700,000 and an allowance
for doubtful accounts of $54,000. On January 24, 2009, the company learns that its
receivable from Keyser Co. is not collectible, and management authorizes a write off of
$5,400.

a) Prepare the journal entry to record the write-off.

b) What is the cash realizable value of the accounts receivable (1) before the write off and
(2) after the write off?

Solution 2

(a) Allowance for Doubtful Accounts..............................  5,400

Accounts Receivable—Keyser............................
 5,400

(b) (1) Before Write-Off (2) After Write-Off

Accounts receivable $700,000 $694,600
Allowance for doubtful
  accounts   54,000   48,600
Cash realizable value $646,000 $646,000

3) Assume the same information as in #2. On March 4, 2009, Davis Co. receives
payment of $5,400 in full from Keyser Co. Prepare the journal entries to record this
transaction.

Accounts Receivable—Keyser...........................................  5,400

 Allowance for Doubtful Accounts..............................
 5,400

Cash...................................................................................  5,400
Accounts Receivable—Keyser....................................
 5,400

4) Nelson Co. elects to use the percentage-of-sales basis in 2008 to record bad debts
expense. It estimates that 2% of net credit sales will become uncollectible. Sales are
$800,000 for 2008, sales returns and allowances are $45,000, and the allowance for
doubtful accounts has a credit balance of $9,000. Prepare the adjusting entry to record
bad debts expense in 2008.

Solution 4
Bad Debts Expense [($800,000 – $45,000) X 2%]............. 15,100
Allowance for Doubtful Accounts..............................
15,100

5) Crisp Co. uses the percentage-of-receivables basis to record bad debts expense. It
estimates that 1% of accounts receivable will become uncollectible. A/R are $450,000 at
the end of the year, and the allowance for doubtful accounts has a credit balance of
$1,500.
a) Prepare the adjusting journal entry to record bad debt expense for the year.
b) If the allowance for doubtful accounts had a debit balance of $800 instead of a credit
balance of $1,500, determine the amount to be reported for bad debts expense.

Solution 5
(a) Bad Debts Expense [($450,000 X 1%) – $1,500] 3,000
Allowance for Doubtful Accounts 3,000

(b) Bad Debts Expense [($450,000 X 1%) + $800] = $5,300

6) Journalize the following transactions.

12/31/2015 Estimated that $7,000 of accounts receivable would become
uncollectible.
1/05/ 2016 Wrote-off the $800 balance owed by Jane Camp and the $500
balance owed by Friends, Inc.
3/18/2016 Reinstated the account of Jane Camp that had been written off
as Uncollectible
Solution 6:
12/31/2015
Uncollectible Accounts Expense 7,000
Allowance for Uncollectible Accounts 7,000
1/05/ 2016
Allowance for Uncollectible Accounts 1,300
Accounts Receivable-Camp 800
Accounts Receivable-Friends 500

3/18/2016
Accounts Receivable-Camp 800
Allowance for Uncollectible Accounts 800
Cash 800
Accounts Receivable-Camp 800

7) Uncollectible accounts expense is estimated at ¼ of 1% of net sales of

$4,000,000 for the year. The current balance in Allowance for Doubtful
Accounts is $300 credit. Determine the following:
a) The uncollectible accounts expense for the year.
b) The adjusting entry to be made on December 31.
c) The balance in Allowance for Doubtful Accounts after adjustment.

Solution 7
1. 4,000,000 * .0025 = $10,000
2. Uncollectible Accounts Expense 10,000
Allowance for Uncollectible Accounts 10,000
3. $300 credit balance + 10,000 additional credit = $10,300 credit
balance