Question

Accounting for Receivables

Solve the Following Problems

1. At December 31, 2019, Carl’s Toys had a balance of $248,100 in its Accounts Receivable account and a credit balance of $900 in its Allowance for Doubtful Accounts account. Carl’s Toys analyzed and aged its accounts receivable based on the following estimated uncollectible amounts:

Age of Accounts	Receivables Balance	Estimated % Uncollectible
Current	$ 130,500	0.6%
31 to 60 day	66,300	2.0%
61 to 90 days	26,700	5.5%
Over 91 days	24,600	21.0%
Total	$248,100

The company bases its provision for credit losses on the aging analysis.

Required:

(1) What amount of bad debt expense will Carl’s Toys report in its 2019 income statement? (Round to nearest whole dollar amount.)

(2) How would Accounts Receivable and the Allowance for Doubtful Accounts appear in its December 31, 2019, balance sheet?

2. Malfoy’s accounts receivable financial data (in millions) for three years are listed below:

	2019	2018	2017
Sales	$159,600	$183,050	$139,300
Gross accounts receivable	4,950	5,460	4,350
Allowance for doubtful accounts	360	300	330

Required:

(1) Calculate the net value of receivables that will be reported on Malfoy’s balance sheet for each year.

(2) Determine the accounts receivable turnover for 2019 and 2018.

(3) Compare the accounts receivable turnovers for 2019 and 2018 and comment on the differences.

3. D’Costa Company uses the allowance method of handling credit losses. It estimates losses at 2% of credit sales, which were $1,800,000 this year. At December 31 of this year, the Accounts Receivable balance is $270,000, and the Allowance for Doubtful Accounts has a $3,600 credit balance before adjustment.

Required:

1. Give the adjusting entry to record bad debts expense for this year.
2. What net amount of accounts receivable would appear on the December 31 balance sheet this year?
3. Assume that D’Costa Company uses aged accounts receivable as a basis of estimating credit losses, instead of a percent of credit sales. If the firm estimates that $22,800 of the accounts will prove uncollectible, what adjusting entry would D’Costa Company make to record the bad debts expense for this year?

4. On January 1 of the current year, Neptune, Inc. had the following accounts on its books:

Accounts Receivable	$240,000	(debit)
Allowance for Doubtful Accounts	8,000	(credit)

During this year, credit sales were $1,200,000 and collections on account were $1,160,000.

Required:

1. Prepare general journal entries for the following transactions that occurred during the year:

• Wrote off N. Purcell’s account, $6,800.
• Wrote off J. Stein’s account, $2,400.
• Stein, who is in bankruptcy, paid $800 in final settlement of the account written off in transaction (2). This amount is not included in the $1,160,000 collections.
• On December 31, estimated the year’s bad debts expense at 1% of credit sales.

Answer 1

	Carls Toys
a
	Age of Accounts Receivables	Balance	Estimated % Uncollectible	Est Uncollectible Amt
	Current	$1,30,500	0.60%	$783
	31 to 60 days	$66,300	2.00%	$1,326
	61 to 90 days	$26,700	5.50%	$1,469
	Over 91 days	$24,600	21.00%	$5,166
	Total	$2,48,100		$8,744
A	Estimated Uncollectable amount.	$8,744
B	Balance in Provision for allowance for doubtful debts	$900
A-B	Bad debt expense to be reported in 2019	$7,844
b	Account Receivable balance	$2,48,100
	less-allowance for doubtful debts	$8,744
	Net Receivable		$2,39,357
	Allowance for doubtful debts (opg bal)		900
	Bad debts provision for the year 2019		$7,844
	Closing balance of allowance for doubtful debts	$8,744
	Malfoys
			2019	2018	2017
A	Sales	$1,59,600	$1,83,050	$1,39,300
B	Gross Account Receivable	$4,950	$5,460	$4,350
C	Allowance for doubtful accounts	$360	$300	$330
B-C	Net value of account receivable	$4,590	$5,160	$4,020
	Account Receivable turonver	7.67	9.33
	Account receivable turnover has decreased from 9.33 to 7.67 in 2019. This means Malfoys is taking more days to collect cash from credit sale
	Acccount Receivable turnover = Net Credit sale/(Opg a/c receibale+clg a/c receivable)/2
	D' Costa Company
	Credit sales	$18,00,000
	Allowance required		$36,000
	Bal in allowance for doubtful debts	$3,600
	Bad debt expense for the current year	$32,400
	Bad debts expense a/c Dr	$32,400
	To allowance for doubtful debts Cr		$32,400
	Allowance required		$22,800
	Bal in allowance for doubtful debts	$3,600
	Bad debt expense for the current year	$19,200
	Bad debts expense a/c Dr	$19,200
	To allowance for doubtful debts Cr		$19,200
	Neptune Inc
	Allowance for doubtful debts a/c Dr	$6,800
	N Purcells's a/c Cr			$6,800
	Allowance for doubtful debts a/c Dr	$2,400
	J Stein's a/c Cr			$2,400
	J Steins a/c Dr		$800
	Allowance for doubtful a/c Cr		$800
	Cash a/c Dr		$800
	J Steins a/c Cr			$800