Question

Sam and Robert are identical twins. They opened identical businesses and experienced identical transactions. However, they decided to estimate uncollectible accounts in different ways. Sam elected to use the percentage of sales method, and Robert elected to use the percentage of receivables method. Listed below are the beginning balances of Cash, Accounts Receivable, and Allowance for Doubtful Accounts [items (a)–(c)], and summary transactions that occurred during the year [items (d)–(g)] for both businesses. Remember, both businesses experienced the same events: credit sales, collections of receivables, and write-offs. The only difference between the businesses is the method of estimating uncollectible accounts.

	Robert
(a) Balance of Cash, January 1, 20--	$300,000
(b) Balance of Accounts Receivable, January 1	50,000
(c) Balance of Allowance for Doubtful Accounts, January 1	5,000
(d) Sales on account during 20--	550,000
(e) Collections on account during 20--	530,000
(f) Uncollectible accounts written off during 20--	4,500
(g) Collections made on accounts written off during 20--	500

Required:

6.	Prepare entries in a general journal (page 4) for summary transactions (d) through (g) for Robert.
7.	Post the entries to a general ledger for Robert, using the same accounts and numbers as were used for Sam.
8.	Robert bases the estimate of uncollectible accounts on an aging schedule of accounts receivable. Using the following information, compute the estimated uncollectible amounts and make the appropriate adjusting entry in a general journal. Post the entry to the general ledger accounts on December 31, 20--.

Customers	Invoice Dates and Amounts for Unpaid Invoices
Beets, D.	10/7	$2,300	11/15	$1,200	12/18	$8,500
Cook, L.	6/1	1,200	8/15	2,500
Hylton, D.	9/23	4,300	10/22	2,500	12/23	2,800
Martin, D.	10/15	5,400	11/12	3,200	12/15	1,500
Stokes, D.	9/9	200	12/15	9,500
Taylor, T.	11/20	400	12/10	1,400
Thomas, O.	12/2	5,500
Tower, R.	12/15	2,300
Williams, G.	11/18	2,800	12/8	8,000

All sales are billed n/30. The following aging chart is used to estimate the uncollectibles using the percentage of receivables method:

	Estimated Percent
Age Interval	Uncollectible
Not yet due	2%
1–30 days	5
31–60 days	10
61–90 days	25
91–120 days	50
Over 120 days	80

9.	Compute the net realizable value of Robert’s accounts receivable on December 31, 20--.

Answer 1

6	Sl No.	Account titles and explanation			Debit	Credit
	(d)	Accounts receivable			550000
		Sales				550000
		(Sales on account)
	e.	Cash			530000
		Accounts receivable				530000
		(Collections on account)
	f.	Allowance for doubtful accounts			4500
		Accounts receivable				4500
		(Uncollectible accounts written off)
	g.	Accounts receivable			500
		Allowance for doubtful accounts				500
		(Collected amounts written off)
		Cash			500
		Accounts receivable				500
		(Collected amounts written off)
7			Accounts receivable
	Sl no.	Particulars			Debit	Sl no.	Particulars			Credit
	Jan 1.	Balance			50000	e.	Cash			530000
	d.	Sales			550000	f.	Allowance for doubtful accounts			4500
	g.	Allowance for doubtful accounts			500	g.	Cash			500
						Dec 31.	Balance			65500
					600500					600500
			Sales
	Sl no.	Particulars			Debit	Sl no.	Particulars			Credit
						d.	Accounts receivable			550000
			Cash
	Sl no.	Particulars			Debit	Sl no.	Particulars			Credit
	Jan 1.	Balance			300000
	e.	Accounts receivable			530000
	g.	Accounts receivable			500
						Dec 31.	Balance			830500
					830500					830500
			Allowance for doubtful accounts
	Sl no.	Particulars			Debit	Sl no.	Particulars			Credit
	f.	Accounts receivable			4500	Jan 1.	Balance			5000
						g.	Accounts receivable			500
	Dec 31.	Balance			1000
					5500					5500
8	Age			Balance				Estimated % Uncollectible	Allowance
	Not yet due			39500	8500+2800+1500+9500+1400+5500+2300+8000			0	0
	1–30 days			7600	1200+3200+400+2800			5	380
	31–60 days			10200	2300+2500+5400			10	1020
	61–90 days			4500	4300+200			25	1125
	91–120 days			2500	2500			50	1250
	Over 120 days			1200	1200			80	960
	Total			65500					4735
9	Net realizable value=Accounts receivable-Allowance for doubtful accounts=65500-4735=60765