Reference no: EM132681486

Problem - Entries related to uncollectible accounts

The following transactions were completed by The Spencer Gallery during the current fiscal year ended December 31:

Mar. 15. Reinstated the account of Brad Atwell, which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,750 cash in full payment of Brad's account.

May 20. Wrote off the $15,000 balance owed by Glory Rigging Co., which is bankrupt.

Aug. 13. Received 40% of the $18,000 balance owed by Coastal Co., a bankrupt business, and wrote off the remainder as uncollectible.

Sept. 2. Reinstated the account of Lorie Kidd, which had been written off two years earlier as uncollectible. Recorded the receipt of $6,500 cash in full payment.

Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Kimbro Co., $9,000; McHale Co., $2,500; Summit Furniture, $7,500; Wes Riggs, $2,000.

Dec. 31. Based on an analysis of the $1,880,000 of accounts receivable, it was estimated that $50,000 will be uncollectible. Journalized the adjusting entry.

Instructions -

1. Record the January 1 credit balance of $38,500 in a T account for Allowance for Doubtful Accounts.

2. Journalize the transactions. Post each entry that affects the following T accounts and determine the new balances.

3. Determine the expected net realizable value of the accounts receivable as of December 31.

4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of 1⁄2 of 1% of the net sales of $9,600,000 for the year, determine the following:

a. Bad debt expense for the year.

b. Balance in the allowance account after the adjustment of December 31.

c. Expected net realizable value of the accounts receivable as of December 31.