Question

1. During 2010, a company provides services of $400,000 on account. Of this amount, $50,000 remains uncollected at the end of the year. An aging schedule as of December 31, 2010, is provided below. Before bad debt expense is recorded, the allowance for doubtful accounts had a $300 credit balance.

Age Group	Amount Receivable	Estimated % Uncollectible
Not yet due	30,000	2%
0-30 days past due	10,000	5%
31-60 days past due	7,000	10%
More than 60 days past due	3,000	20%
Total	50,000

1. Calculate the desired ending balance for the allowance for uncollectible accounts.

2. Record the December 31, 2010 journal entry to record the period’s estimate of uncollectible accounts.

3. On April 3, 2011, a customer’s account balance of $400 is written off as uncollectible. Record the write-off in a journal entry.

4. On July 17, 2011, the customer whose account was written off in part 3 unexpectedly pays

$100 of the amount but does not expect to pay any additional amount. Record the cash collection.

2. During July and August, a firm sells goods to three customers. The transactions are listed below.

August 1           Sold goods for $1,500 to Customer 1 and billed that amount subject to terms 2/10, n/30.

August 1           Sold goods to Customer 2 for $850 and billed that amount subject to terms 2/10, n/30.

August 4           Collected cash due from Customer 1

September 2     Collected cash due from Customer 2

September 28   Sold goods for $500 to Customer 3, who paid with a credit card (4% fee).

Compute 1) Gross sales and 2) net sales for the two months ending on the last day of September.

Answer 1

SOLUTION:

Age Interval	Receivables	% Uncollectible	Allowance
Not yet due	30000	2%	600
0-30 days past due	10000	5%	500
31-60 days past due	7000	10%	700
More than 60 days past due	3000	20%	600
Total	50000		2400

Ending Balance of allowance for doubtful debts = Opening Balance + Total Allowance

= -300 + 2400

= 2100

Account Titles	Debit($)	Credit($)
Bad Debt Expense	2100
Allowance for Doubtful Accounts		2100

Account Titles	Debit($)	Credit($)
Accounts Receivable	400
Allowance for Doubtful Accounts		400
Cash	100
Accounts Receivable		100