Question

# Accounting for Receivables Solve the Following Problems At December 31, 2019, Carl’s Toys had a balance...

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?

1. 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.

 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

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