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.

Homework Answers

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
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