Question

During its first year of operations, Middleton Products Inc. had sales of $850,000, all on account. Industry experience suggests that Middleton Products uncollectibles will amount to 5% of ending accounts receivable. At the end of the first year, December 31, 2019, Middleton Products’ accounts receivable total $80,000. The company will use the allowance method to account for uncollectibles.

During 2020, Middleton Products completed the following transactions:

i) Credit Sales, $1,200,000

ii) Collections on account, $960,000

iii) Write-offs of uncollectibles, $2,800

iv) The company expects that $15,000 of its December 31, 2020 accounts receivable will be uncollectible. Required

a) Prepare Middleton Products’ journal entry for bad debt expense on December 31, 2019 using the aging-of-receivables method

b) Prepare the journal entries to record Middleton Products’ 2020 transactions

c) At December 31, 2020, what is the net realizable value of the company’s accounts receivable?

Answer 1

a. Journal Entry

Bad Debt A/c Dr. $4000

To Provision for Bad Debt A/c $4000

( Being Provision made)

b. Journal Entries:

1. Sundry Debtors A/c Dr. $1,200,000

To Sale A/c $1,200,000

2. Bank A/c Dr. $960,000   

To Sundry Debtors $960,000

3. Provision for Bad Debt A/c Dr. $2800

To Sundry Debtor A/c $2800

4. Bad Debt A/c Dr. $13800

To Provision for Bad Debt A/c $13800

c. Net Realizable Value = Sundry Debtor A/c - Provision for Bad Debt A/c

= (80000+1200000-960000-2800) - 15000

= $302200