BUSI 293
Online Review Session
Accounts Receivable
Question 1
Saturn Inc. had the following balances at December 31st, 2020:
Accounts receivable
Allowance for doubtful accounts
$750,000 dr
$120,000 cr
The following transactions occurred in 2021:
1. Sales for the year totaled $8,000,000. 85% of the sales were on account.
2. Cash collections of accounts receivable in the year totaled $6,500,000.
3. During the year, Ace wrote off specific accounts totaling $110,000.
4. A bankrupt customer whose account had been written off in 2020 was able to re-pay $40,000 of its
account receivable.
5. During the year, Ace estimated bad debt expense as 0.5% of credit sales.
6. Ace prepared an accounts receivable aging schedule at December 31, 2021, as follows:
Category
0 – 30 days
31 – 60 days
61 – 90 days
Over 90 days
Amount
$564,000
$235,000
$94,000
$47,000
Estimated %
uncollectible
1%
5%
20%
40%
7. In the over 90-day category, Ace identified $25,000 of accounts that will not be collected.
Required:
1. Prepare the journal entries to record all of the above transactions.
2. Provide the appropriate balance sheet presentation for accounts receivable at December 31st,
2021.
3. What is the bad debt expense for 2021?
Question 2
Mars Inc. sells industrial pump products to mining companies throughout British
Columbia. The company’s credit policy for established customers requires invoices to be paid within forty
days of product delivery. For newer customers, Mars requires all sales to be cash upon delivery. The
company has a fiscal year-end of December 31st.
The following information is available for the company’s 2020 fiscal year:
Accounts receivable (January 1st, 2020)
Allowance for doubtful accounts (January 1st, 2020)
Total sales (cash and credit) during 2020
Total cash sales during 2020
Collections of accounts receivable during 2020
Write-offs of customer accounts in 2020
$670,000
$40,000
$6,170,000
$755,000
$5,231,000
$33,000
During the year, company estimated and recorded bad debt expense as 0.75% of credit sales. The
final amount of bad debt expense for the year will be determined using an aging analysis. The
company estimates the uncollectible amount of year-end accounts receivable could be estimated
using the following aging schedule:
1 – 30 days old
31 – 60 days old
61-90 days old
Over 90 days
5%
15%
30%
50%
At the end of 2021, 50% of gross receivables are 1 – 30 days old, 30% are 31 – 60 days old, 15% are 61-90
days old and 5% are greater than 90 days old.
Required:
1. Determine the balance of gross accounts receivable as at December 31, 2020.
2. Calculate the 2020 year-end balances for bad debt expense and allowance for doubtful
accounts assuming Mars adopts the aging method.
3. Sales revenue in 2019 totaled $4,875,000. $500,000 of this amount were cash sales. The
net balance in accounts receivable (Gross receivables minus the allowance for doubtful
accounts) at January 1st, 2019 was $270,000. Calculate the accounts receivable turnover
for 2020 and 2019.