ACC 204, Chapter 8, Review
A.
Accounting for Bad Debts – Two Cycles Under the Allowance Method
Record the journal entry for each transaction.
The following transactions apply to Smith Consulting for 2003, the first year of operations:
1. Recognized $80,000 of service revenue earned on account.
2. Collected $68,000 from accounts receivable.
3. Adjusted accounts to recognize bad debts expense. Smith uses the allowance method
for accounting for bad debts and estimates that 5% of the year-end accounts receivable
will be uncollectible.
The following transactions apply to Smith Consulting for 2004.
1. Recognized $103,000 of service revenue on account.
2. Collected $95,000 from accounts receivable.
3. Determined that $400 of the accounts receivable was uncollectible and wrote it off.
4. Adjusted accounts to recognize bad debt expense for 2004. Jones estimates that 4% of
the year end balance of accounts receivable will be uncollectible.
B.
On December 31, 2004 before year-end adjustments, the balance in Steps Co. Accounts
Receivable was $555,000 and the Allowance for Doubtful Accounts was a $25,000. The
year-end balance for net accounts receivable will be based on the aging schedule below.
Days
Outstanding
Current
16-30 days
31-45 days
46-60 days
61-75 days
75+ days
Amount
$300,000
100,000
80,000
40,000
20,000
15,000
Probability
of Collection
98%
90%
80%
70%
50%
0%
1. What is the appropriate balance for the Allowance for Doubtful Accounts on December
31, 2004.
2. Show the Accounts Receivable section of the balance sheet at December 31, 2004.
3. Show the adjusting journal entry to record bad debt expense.
C.
The following information is available for the ECR Repair Company’s sales on account
and accounts receivable:
Accounts receivable balance, 1/1/2004
Allowance for doubtful accounts, 1/1/2004
Sales on account, 2004
Collections on account, 2004
$ 43,200
1,296
317,450
321,215
After several collection attempts, ECR wrote off accounts that could not be collected of
$1,125. ECR estimates that 3% of the ending accounts receivable balance will be
uncollectible.
Record the journal entries
1. Sales on account for 2004.
2. Collections on account 2004.
3. Write-off the accounts that are not collective.
4. Record the estimated bad debt expense for 2004.
Compute the following amounts:
1. Using the allowance method, the amount of bad debt expense for 2004.
2. Net realizable value of receivables at end of 2004.
Explain why the bad debt expense amount is different from the amount that was
written off as uncollectible.
D.
Crocket Corporation prepared the following aging schedule of its accounts receivable at
December 31, 2004.
Estimated
Number of Days
Uncollectible
Outstanding
Amount
Percentage
0-20
$540,000
2
21-40
180,000
3
41-60
90,000
4
61-80
60,000
5
Over 80
70,000
7
Crocket reported sales on account of $2,600,000 during 2004 and wrote off $37,600 of
accounts receivable as uncollectible for the year. Accounts receivable at January 1, 2004,
was $895,000 and the allowance for uncollectible accounts was $41,200. Cash collected
during 2000 was $2,517,400.
1. Compute the required balance in the allowance for uncollectible accounts at December 31,
2004.
2. Compute the amount that Crocket Corporation must record as bad debt expense for 2004 to
bring the balance in the allowance for uncollectible accounts to the required level.
3. Compute the balance in accounts receivable at December 31, 2004.