Question

Joey’s Bike Shop sells new and used bicycle parts. Although a majority of its sales are cash sales, it makes a significant amount of credit sales. During Year 1, its first year of operations, Joey’s Bike Shop experienced the following:

Sales on account	$	298,800
Cash sales		633,300
Collections of accounts receivable		283,860
Uncollectible accounts charged off during the year		1,169

Required:
a. Assume that Joey’s Bike Shop uses the allowance method of accounting for uncollectible accounts and estimates that 1 percent of its sales on account will not be collected. Answer the following questions:

1. (1) What is the Accounts Receivable balance at December 31, Year 1?
2. (2) What is the ending balance of the Allowance for Doubtful Accounts at December 31, Year 1, after all entries and adjusting entries are posted?
3. (3) What is the amount of uncollectible accounts expense for Year 1?
4. (4) What is the net realizable value of accounts receivable at December 31, Year 1?

  

1	accounts receivable
2	allowance for doubtful accounts
3	uncollectible accounts expense
4	Net realizable value

b. Assume that Joey’s Bike Shop uses the direct write-off method of accounting for uncollectible accounts. Answer the following questions:

1. (1) What is the Accounts Receivable balance at December 31, Year 1?
2. (2) What is the amount of uncollectible accounts expense for Year 1?
3. (3) What is the net realizable value of accounts receivable at December 31, Year 1?

  

1	account receivable
2	uncollectable accounts expenses
3	net realizable value

  

Answer 1

Summary of Accounts Receivable:

Sales	$298,800
Collections	(283,860)
Write-offs	(1,169)
Ending Balance	$13,771

Summary of Allowance for Doubtful Accounts:

Established	$2,988 (298,800*1%)
Write-off	(1,169)
Ending Balance	$1,819

a.

(1) $13,771 (see

(2) $1,819

(3) $2,988 ($298,800 x 1%)

(4) $13,771 - $1,819 = $11,952

b.   

(1) $13,771 (same as above)

(2) $1,169 (the amount written off)

(3) $13,771 (the balance of accounts receivable)