Question

Lincoln uses income statement approach to estimate uncollectible accounts. During the year of 2019, total sales amount to $400,000 of which 37.5% is cash sales.

Past experience indicate that 1.5% of credit sales are probable to be uncollectible. Prior to adjustment, the allowance for doubtful accounts has a credit balance of $1,500 at December 31, 2019. Total amount of accounts receivable, on the other hand, amount to $267,000 as of December 31, 2019.

Instructions (25 points):

1. Compute the uncollectible accounts expense for the year of 2019 and journalize the adjusting entry at December 31, 2019.
2. Compute the balance of allowance for doubtful accounts after adjustment at December 31, 2019.     

Compute the amount of account receivable that should be reported in the balance sheet at December 31, 2019

Answer 1

• [a]

A	Total Sales	$400,000
B = A x 62.5%	Credit sale	$250,000
C = B x 1.5%	Uncollectible account expense	$3,750	Answer

Accounts title	Debit	Credit
Uncollectible account expense	$3,750
Allowance for Doubtful accounts		$3,750
(to record uncollectible expense)

• [b]

Balance of Allowance account before Adjustment	$1,500	Credit
Amount credited as Uncollectible expense	$3,750
Balance after adjustments	$5,250	Credit = Answer

• [c]

Balance Sheer - Partial
Current Assets:
Accounts receivables	$267,000
Less: Allowance for Doubtful accounts	$5,250
Accounts receivables, net realizable value	$261,750