 Accounting for Receivables

 Recognition of Accounts Receivable

BE 159
Record the following transactions for Verbatim Company.
1. On August 4, Verbatim sold merchandise on account to Reedy Company for $450, terms
2/10, n/30.
2. On August 7, Verbatim granted Reedy a sales allowance and reduced the cost of the
merchandise by $50 because some of the goods were slightly damaged.
3. On August 12, Reedy paid the account in full.

Solution
1. Accounts Receivable .......................................... 450
Sales Revenue................................................. 450
2. Sales Returns and Allowances ................................. 50
Accounts Receivable.................................................. 50
3. Sales Discounts ................................................. 8
Cash....................................................................... 392
Accounts Receivable............................. 400
Valuation and Disposition of Accounts Receivable

Uncollectible Accounts Receivable

• Sales on account raise the possibility of accounts not being collected

• Companies record credit losses as debits to Bad Debt Expense

Allowance Method For Uncollectible Accounts

1. Companies estimate uncollectible accounts receivable.

2. Debit Bad Debt Expense and credit Allowance for Doubtful Accounts (a contra-asset
account).
3. Companies debit Allowance for Doubtful Accounts and credit Accounts Receivable at the
time the specific account is written off as uncollectible.

BE 160
At December 31, 2008, Attwood Company reported Accounts Receivable of $34,000 and
Allowance for Doubtful Accounts of $3,500. On January 7, 2009, Brady Enterprises declares
bankruptcy and it is determined that the receivable of $1,200 from Brady is not collectible.
1. What is the cash realizable value of Accounts Receivable at December 31, 2008?
2. What entry would Attwood make to write off the Brady account?
3. What is the cash realizable value of Accounts Receivable after the Brady account is
written off?
Solution
1. Cash realizable value = $34,000 – $3,500 = $30,500

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 2. Allowance for Doubtful Accounts ......................... 1,200
Accounts Receivable—Brady................................... 1,200
3. Cash realizable value = ($34,000 – $1,200) – ($3,500 – $1,200) = $30,500

BE 161
Portillo Company’s ledger at the end of the current year shows Accounts Receivable of
$150,000.
Instructions
a. If Allowance for Doubtful Accounts has a credit balance of $3,000 in the trial balance and
bad debts are expected to be 10% of accounts receivable, journalize the adjusting entry for
the end of the period.
b. If Allowance for Doubtful Accounts has a debit balance of $3,000 in the trial balance and bad
debts are expected to be 10% of accounts receivable, journalize the adjusting entry for the end
of the period.
Solution
(a) Bad Debts Expense ......................... 12,000
Allowance for Doubtful Accounts ($15,000 – $3,000).......... 12,000
(To adjust the allowance account to total estimated uncollectible, $150,000 × .10 = $15,000)
(b) Bad Debts Expense ................................ 18,000
Allowance for Doubtful Accounts ($15,000 + $3,000) ......... 18,000

BE 162
Noell Co. sells Christmas angels. Noell determines that at the end of December, it has the
following aging schedule of Accounts Receivable:

Customer
Not Yet
Total 1–30 31–60 61–90 Over 90
Due
DV Farmer $500 $300 $200
JJ Joysen 300 100 200
NJ Bell 150 50 100
JC Net 200 200
? 300 300 250 200 100
% uncollectible 1% 5% 10% 20% 50%
Total Estimated ? ? ?
Uncollectible ? ? ?
Amounts

Compute the net receivables based on the above information at the end of December. (There
was no beginning balance in the Allowance for Doubtful Accounts).

Disposing of Accounts Receivable

Companies sell receivables for two major reasons.

2
 1. Receivables may be the only reasonable source of cash.
2. Billing and collection are often time-consuming and costly.

Sale of Receivables to a Factor

• Finance company or bank

• Buys receivables from businesses and then collects payments directly from
customers
• Typically charges a commission to company that is selling receivables
• Fee ranges from 1 to 3% of receivables purchased
• BE 163
Mickey Company has the following accounts in its general ledger at July 31: Accounts
Receivable $40,000 and Allowance for Doubtful Accounts $2,500. During August, the
following transactions occurred.

Sold $20,000 of accounts receivable to Good Factors, Inc. who assesses a

Oct.15
3% finance charge.

• 25 Made sales of $900 on VISA credit cards. The credit card service charge is 2%.
Instructions : Journalize the transactions.
Solution
Oct. 15

Cash......................... 19,400
Service Charge Expense ($20,000 × 3%) ......... 600
Accounts Receivable ........................................ 20,000
25

Cash....................................................................... 882
Service Charge Expense ($900 × 2%) ................... 18
Sales ............................................ 900

National Credit Card Sales

Recorded same as cash sales

Ex. 173

Record the following transactions for Wheeler Company.

1.On April 12, sold $12,000 of merchandise to Finney Inc., terms 2/10, n/30.

2.On April 15, Finney returned $2,000 of merchandise.

3.On April 22, Finney paid for the merchandise.

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Solution

1.Accounts Receivable.......................... 12,000

Sales.......................................................... 12,000

1. Sales Returns and Allowances............................ 2,000

Accounts Receivable ........................... 2,000

3. Cash ($10,000 – $200)................. 9,800

Sales Discounts ($10,000 × 2%)... 200

Accounts Receivable ($12,000 – $2,000) = 10,000

Ex. 174

The Dent Sign Company uses the allowance method in accounting for uncollectible accounts.

Past experience indicates that 1% of net credit sales will eventually be uncollectible. Selected

account balances at December 31, 2007, and December 31, 2008, appear below:

2007 2008

Net Credit Sales $400,000 $500,000

Accounts Receivable 75,000 100,000

Allowance for Doubtful Accounts 5,000 ?

Instructions

(a) Record the following events in 2008.

Aug. 10 Determined that the account of Ann Koch for $1,000 is uncollectible.

Sept. 12 Determined that the account of Joe Yates for $4,000 is uncollectible.

Oct. 10 Received a check for $550 as payment on account from Ann Koch, whose

Account had previously been written off as uncollectible. She indicated the remainder of her
account would be paid in November.

Nov. 15 received a check for $450 from Ann Koch as payment on her account.

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b) Prepare the adjusting journal entry to record the bad debt provision for the year ended

December 31, 2008.

c) What is the balance of Allowance for Doubtful Accounts at December 31, 200

Solution
(a) Aug. 10 Allowance for Doubtful Accounts............... 1,000
Accounts Receivable—Ann Koch....................... 1,000
(To write off Ann Koch account)
Sept. 12 Allowance for Doubtful Accounts.................. 4,000
Accounts Receivable—Joe Yates....................... 4,000
(To write off Joe Yates account)
Oct. 10 Accounts Receivable—Ann Koch................ 1,000
Allowance for Doubtful Accounts........................ 1,000
(To reinstate Ann Koch account previously written off)
Cash ................... 550
Accounts Receivable—Ann Koch.............. 550
(To record collection on account)
Nov. 15 Cash ..................................... 450
Accounts Receivable—Ann Koch....................... 450
(To record collection on account)
(b) Dec. 31 Bad Debts Expense ($500,000 × 1%) ........ 5,000
Allowance for Doubtful Accounts........................ 5,000
(To record estimate of uncollectible accounts)
(c) Balance of Allowance for Doubtful Accounts at December 31, 2008, is $6,000

($5,000 – $1,000 – $4,000 + $1,000 + $5,000).

Ex. 175 : Kiley Company had a $700 credit balance in Allowance for Doubtful Accounts at
December 31, 2008, before the current year's provision for uncollectible accounts. An aging of
the accounts receivable revealed the following:

Estimated Percentage Uncollectible

Current Accounts $120,000

1%
1–30 days past due 12,000
3%
31–60 days past due 10,000
6%
61–90 days past due 5,000
12%
Over 90 days past due 8,000
30%
Total Accounts Receivable $155,000
Instructions

Instructions

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(a) Prepare the adjusting entry on December 31, 2008, to recognize bad debts expense.
(b) Assume the same facts as above except that the Allowance for Doubtful Accounts account
had a $500 debit balance before the current year's provision for uncollectible accounts.
Prepare the adjusting entry for the current year's provision for uncollectible accounts.
(c) Assume that the company has a policy of providing for bad debts at the rate of 1% of sales,
that sales for 2008 were $550,000, and that Allowance for Doubtful Accounts had a $650 credit
balance before adjustment. Prepare the adjusting entry for the current year's provision for bad
debts.

Solution
(a) Bad Debts Expense ................... 4,460
Allowance for Doubtful Accounts ($5,160 – $700)............... 4,460
(To adjust the allowance account to total estimated uncollectible)
(b) Bad Debts Expense .......................... 5,660
Allowance for Doubtful Accounts ($5,160 + $500) .............. 5,660
(To adjust the allowance account to total estimated uncollectible)
(c) Bad Debts Expense ($550,000 × 1%)............... 5,500
Allowance for Doubtful Accounts................. 5,500
(To record estimated bad debts for year)
Ex. 176
Compute bad debts expense based on the following information:
(a) Taylor Company estimates that 1% of net credit sales will become uncollectible. Sales are
$600,000, sales returns and allowances are $30,000, and the allowance for doubtful accounts
has a $6,000 credit balance.
(b) Taylor Company estimates that 3% of accounts receivable will become uncollectible.
Accounts receivable are $100,000 at the end of the year, and the allowance for doubtful
accounts has a $500 debit balance.
Solution
(a) Bad debts expense = $5,700 [($600,000 – $30,000) × .01]
(b) Bad debts expense = $3,500 [($100,000 × .03) + $500]
Ex. 177
The December 31, 2007 balance sheet of Quayle Company had Accounts Receivable of
$500,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2008, the
following transactions occurred: sales on account $1,400,000; sales returns and allowances,
$50,000; collections from customers, $1,150,000; accounts written off $35,000; previously
written off accounts of $5,000 were collected.
Instructions
(a) Journalize the 2008 transactions.
(b) If the company uses the percentage of sales basis to estimate bad debts expense and
anticipates 2% of net sales to be uncollectible, what is the adjusting entry at December 31,
2008?
(c) If the company uses the percentage of receivables basis to estimate bad debts expense and
determines that uncollectible accounts are expected to be 4% of accounts receivable, what is
the adjusting entry at December 31, 2008?
(d) Which basis would produce a higher net income for 2008 and by how much?

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Solution
(a) Accounts Receivable .............................. 1,400,000
Sales .................................. 1,400,000
(To record credit sales)
Sales Returns and Allowances........................ 50,000
Accounts Receivable.............................................. 50,000
(To record credits to customers)
Cash ......................................... 1,150,000
Accounts Receivable............................................ 1,150,000
(To record collection of receivables)
Allowance for Doubtful Accounts.......... 35,000
Accounts Receivable......................................... 35,000
(To write off specific accounts)
Accounts Receivable ...................... 5,000
Allowance for Doubtful Accounts.......................... 5,000
(To reverse write-off of account)
Cash .................................... 5,000
Accounts Receivable.................................. 5,000
(To record collection of account)
(b) Percentage of sales basis:
Sales ............................................................................................. $1,400,000
Less: Sales Returns and Allowances............................................. (50,000)
Net Sales.............................................................................. 1,350,000
Bad debt percentage ...................................................................... .02
Bad debt provision.......................................................................... $ 27,000

Dec. 31 Bad Debts Expense ........................... 27,000

Allowance for Doubtful Accounts ............................. 27,000

Ex. 178
Lloyd Products is undecided about which base to use in estimating uncollectible accounts. On
December 31, 2008, the balance in Accounts Receivable was $680,000 and net credit sales
amounted to $3,500,000 during 2008. An aging analysis of the accounts receivable indicated
that $36,000 in accounts are expected to be uncollectible. Past experience has shown that
about 1% of net credit sales eventually are uncollectible.
Instructions
Prepare the adjusting entries to record estimated bad debts expense using the (1) percentage
of sales basis and (2) the percentage of receivables basis under each of the following
independent assumptions:
(a) Allowance for Doubtful Accounts has a credit balance of $3,200 before adjustment.
(b) Allowance for Doubtful Accounts has a debit balance of $730 before adjustment.
Solution
(1) Percentage of sales basis:
The following adjusting entry would be the same regardless of the balance in the Allowance
for Doubtful Accounts.

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Bad Debts Expense ($3,500,000 × .01)........... 35,000
Allowance for Doubtful Accounts...................... 35,000
(2) Percentage of receivables basis:
(a) Bad Debts Expense ($36,000 – $3,200) .......... 32,800
Allowance for Doubtful Accounts ................................... 32,800
(b) Bad Debts Expense ($36,000 + $730) ............. 36,730
Allowance for Doubtful Accounts ..................... 36,730
Ex. 179
The income statement approach to estimating uncollectible accounts expense is used by
Dodson Company. On February 28, the firm had accounts receivable in the amount of $437,000
and Allowance for Doubtful Accounts had a credit balance of $2,140 before adjustment. Net
credit sales for February amounted to $3,000,000. The credit manager estimated that
uncollectible accounts expense would amount to 1% of net credit sales made during February.
On March 10, an accounts receivable from Marie Green for $6,100 was determined to be
uncollectible and written off. However, on March 31, Green received an inheritance and
immediately paid her past due account in full.

Instructions

(a) Prepare the journal entries made by Dodson Company on the following dates:
1. February 28
2. March 10
3. March 31
(b) Assume no other transactions occurred that affected the allowance account during March.
Determine the balance of Allowance for Doubtful Accounts at March 31.
Solution
(a) 1. Feb. 28 Bad Debts Expense ($3,000,000 × .01) ......... 30,000
Allowance for Doubtful Accounts..................... 30,000
(To record the bad debts expense for February)
2. Mar. 10 Allowance for Doubtful Accounts............ 6,100
Accounts Receivable—M. Green........ 6,100
(To write off M. Green account deemed uncollectible)
3. Mar. 31 Accounts Receivable—M. Green ........ 6,100
Allowance for Doubtful Accounts............ 6,100
(To reinstate an account previously written off)
Mar. 31 Cash ............................ 6,100
Accounts Receivable— M. Green.................... 6,100
(To record payment on account in full)
(b) $2,140 + $30,000 – $6,100 + $6,100 = $32,140.
Ex. 180
Elder Company uses the allowance method for estimating uncollectible accounts. Prepare
journal entries to record the following transactions:
January 5 Sold merchandise to Mary Cerner for $1,000, terms n/15.
April 15 Received $200 from Mary Cerner on account.
August 21 Wrote off as uncollectible the balance of the Mary Cerner account when she

8
declared bankruptcy.
October 5 Unexpectedly received a check for $250 from Mary Cerner.

January 5 Accounts Receivable .................... 1,000

Sales......................................... 1,000

Cash 200
April 15
Accounts Receivable—M. Cerner 200.

August 21 Allowance for Doubtful Accounts.............. 800

Accounts Receivable—M. Cerner............................ 800
October 5 Accounts Receivable—M. Cerner..................................... 250
Allowance for Doubtful Accounts ............................. 250
Cash ................................................................................. 250
Accounts Receivable—M. Cerner............................ 250
Ex. 181
Stone Furniture Store has credit sales of $400,000 in 2008 and a debit balance of $600 in the
Allowance for Doubtful Accounts at year end. As of December 31, 2008, $130,000 of accounts
receivable remain uncollected. The credit manager prepared an aging schedule of accounts
receivable and estimates that $3,000 will prove to be uncollectible.
On March 4, 2009, the credit manager authorizes a write-off of the $1,000 balance owed by A.
Lowell.
Instructions
(a) Prepare the adjusting entry to record the estimated uncollectible accounts expense in 2008.
(b) Show the balance sheet presentation of accounts receivable on December 31, 2008.
(c) On March 4, before the write-off, assume the balance of Accounts Receivable account is
$160,000 and the balance of Allowance for Doubtful Accounts is a credit of $2,000. Make the
appropriate entry to record the write-off of the Lowell account. Also show the balance sheet
presentation of accounts receivable before and after the write-off.
Solution
(a) Bad Debts Expense ($3,000 + $600)..................... 3,600
Allowance for Doubtful Accounts.................. 3,600
(b) Accounts Receivable ..................................................................... $130,000
Less: Allowance for Doubtful Accounts......................................... ( 3,000 )

$127,000
(c) Allowance for Doubtful Accounts ................ 1,000
Accounts Receivable—A. Lowell............................ 1,000

Before Write-off After Write-off

$160,000 $159,000 Accounts Receivable
2,000 1,000 Less: Allowance for Doubtful Accounts
$158,000 $158,000 Cash Realizable Value

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Ex. 183
Prepare the necessary journal entry for the following transaction.
Carlson Company sold $200,000 of its accounts receivables to a factor. The factor charges a
3% fee.
Solution
Cash ($200,000 – $6,000)............................. 194,000
Service Charge Expense ($200,000 × 3%)..... 6,000
Accounts Receivable........................................... 200,000
Ex. 184
Morton Company has the following accounts receivable in its general ledger at July 31:
Accounts Receivable $32,000. During August, the following transactions occurred.

Added 1% finance charges to $12,000 of credit card balances for not paying
Aug.1
within the 30 day grace period.

15 Sold $20,000 of accounts receivable to Rush Factors Inc. who charge a 2%

commission.
28 Collected $7,000 from Morton credit card customers including $350 of finance charges
previously billed.
Instructions
(a) Journalize the transactions.
(b) Indicate the statement presentation of finance and service charges.
Solution
(a) Aug. 1 Accounts Receivable........ 120
Interest Revenue ........................... 120
(To recognize finance charges—1% × $12,000)
15 Cash.......................... 19,600
Service Charge Expense ($20,000 × 2%)......... 400
Accounts Receivable..................... 20,000
(To record sale of receivables to Rush Factors)
28 Cash............................. 7,000
Accounts Receivable............................ 7,000
(To record collection of Morton receivables)
(b) Service Charge Expense is a selling expense. Interest Revenue is classified under Other
Revenues and Gains

Ex. 185
Listed below are two independent situations involving the disposition of receivables.
1. Dylan Company sells $300,000 of its receivables to Speedy Factors, Inc. Speedy Factors
assesses a finance charge of 2% of the amount of receivables sold.
Instructions
Prepare the journal entry to record the sale of the receivables on Dylan Company's books.

2. A restaurant is the site for a large company party. The bill totals $3,000 and is charged by
the patron on a Visa credit card.

11
Instructions
Assume a 3% service fee is charged by Visa. Record the entry for the transaction on the
restaurant's books.
Solution
1. Cash.......................................... 294,000
Service Charge Expense ($300,000 × .02)............. 6,000
Accounts Receivable........................................ 300,000
2. Cash........................................... 2,910
Service Charge Expense ($3,000 × .03) .............. 90
Sales ...................... 3,000

E9-2B

Presented below are two independent situations.

(a) On January 6, Frye Co. sells merchandise on account to Hossfeld Inc. for $5,500, terms
2/10, n/30. On January 16, Hossfeld Inc. pays the amount due. Prepare the entries on
Frye’s books to record the sale and related collection.
(b) On January 10, Maria Montoya uses her Apple Co. credit card to purchase merchandise
from Apple Co. for $5,500. On February 10, Montoya is billed for the amount due
of $5,500. On February 12, Montoya pays $4,000 on the balance due. On March 10,
Montoya is billed for the amount due, including interest at 2% per month on the
unpaid balance as of February 12. Prepare the entries on Apple Co.’s books related to
the transactions that occurred on January 10, February 12, and March 10

E9-3B

The ledger of Didde Company at the end of the current year shows Accounts Receivable
$180,000, Sales Revenue $1,800,000, and Sales Returns and Allowances $60,000.
Instructions
(a) If Didde uses the direct write-off method to account for uncollectible accounts, journalize the
adjusting entry at December 31, assuming Didde determines that Willie’s
$2,900 balance is uncollectible.
(b) If Allowance for Doubtful Accounts has a credit balance of $4,300 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 1% of net sales, and (2) 10% of accounts receivable.
(c) If Allowance for Doubtful Accounts has a debit balance of $410 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 0.75% of net sales and (2) 6% of accounts receivable.

E9-4B

Rich Company has accounts receivable of $110,000 at March 31. An analysis of the
accounts shows the following.

Month of Sale

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March $ 62,000
February 18,000
January 17,000
Prior to January 13,000

Balance, March 31 $110,000

Credit terms are 2/10, n/30. At March 31, Allowance for Doubtful Accounts has a credit
balance of $2,100 prior to adjustment. The company uses the percentage-of-receivables
basis for estimating uncollectible accounts. The company’s estimate of bad debts is as
follows.
Age of Accounts Uncollectible Estimated Percentage

1–30 days 2.0%

31–60 days 5.0%
61–90 days 30.0%
Over 90 days 50.0%

Instructions
(a) Determine the total estimated uncollectibles.
(b) Prepare the adjusting entry at March 31 to record bad debt expense.

E9-5B

At December 31, 2016, Apodaca Company had a balance of $23,000 in the Allowance for
Doubtful Accounts. During 2017, Apodaca wrote off accounts totaling $18,100.
One of those accounts ($2,900) was later collected. At December 31, 2017, an aging schedule
indicated that the balance in the Allowance for Doubtful Accounts should be $28,000.
Instructions
Prepare journal entries to record the 2014 transactions of Apodaca Company.

E9-6B

On December 31, 2017, Clements Co. estimated that 2% of its net sales of
$600,000 will become uncollectible. The company recorded this amount as an addition
to Allowance for Doubtful Accounts. On May 11, 2018, Clements Co. determined that
Larry Aber’s account was uncollectible and wrote off $2,500. On June 12, 2018, Aber
paid the amount previously written off.
Instructions
Prepare the journal entries on December 31, 2017, May 11, 2018, and June 12, 2018.

E9-7B

Presented below are two independent situations.

(a) On March 3, Torres Appliances sells $770,000 of its receivables to Meadows Factors
Inc. Meadows Factors assesses a finance charge of 3% of the amount of receivables

12
sold. Prepare the entry on Torres Appliances’ books to record the sale of the receivables.
(b) On May 10, Ogle Company sold merchandise for $2,700 and accepted the customer’s
National Bank MasterCard. National Bank charges a 4% service charge for credit card
sales. Prepare the entry on Ogle Company’s books to record the sale of merchandise.

E9-8B

Presented below are two independent situations.

(a) On April 2, Jose Ruiz uses his Sears Company credit card to purchase merchandise
from a Sears store for $1,500. On May 1, Ruiz is billed for the $1,500 amount due. Ruiz
pays $600 on the balance due on May 3. On June 1, Ruiz receives a bill for the amount
due, including interest at 1.0% per month on the unpaid balance as of May 3. Prepare
the entries on Sears Co.’s books related to the transactions that occurred on April 2,
May 3, and June 1.
(b) On July 4, Polino’s Restaurant accepts a Visa card for a $400 dinner bill. Visa charges
a 3% service fee. Prepare the entry on Polino’s books related to this transaction.

E9-9B

Colorado Stores accepts both its own and national credit cards. During the year the
following selected summary transactions occurred.
Jan. 15 Made Colorado credit card sales totaling $15,000. (There were no balances prior
to January 15.)
20 Made Visa credit card sales (service charge fee 3%) totaling $8,500.
Feb. 10 Collected $8,000 on Colorado credit card sales.
15 Added finance charges of 1% to Colorado credit card balance.
Instructions
(a) Journalize the transactions for Colorado Stores.
(b) Indicate the statement presentation of the financing charges and the credit card service
charge expense for Colorado Stores.

E9-14B

Reeves Company had accounts receivable of $220,000 on January 1, 2017. The

only transactions that affected accounts receivable during 2017 were net credit sales of

$2000000 ,cash collections of $1,820,000, and accounts written off of $50,000.

Instructions

(a) Compute the ending balance of accounts receivable.

(b) Compute the accounts receivable turnover for 2017.

13
(c) Compute the average collection period in days.

P9-1C

At December 31, 2016, Shellankamp Imports reported the following information

on its balance sheet.

Accounts receivable $1,000,000

Less: Allowance for doubtful accounts 60,000
$2,570,000

During 2017, the company had the following transactions related to receivables.

1. Sales on account

2. Sales returns and allowances 40,000

3. Collections of accounts receivable 2,300,000
4. Write-offs of accounts receivable deemed uncollectible 65,000

5. Recovery of bad debts previously written off as uncollectible 35,000

Instructions

(a) Prepare the journal entries to record each of these five transactions. Assume that no
cash discounts were taken on the collections of accounts receivable.
(b) Enter the January 1, 2017, balances in Accounts Receivable and Allowance for Doubtful
Accounts. Post the entries to the two accounts (use T accounts), and determine the
balances.
(c) Prepare the journal entry to record bad debts expense for 2017, assuming that an
aging of accounts receivable indicates that estimated bad debts are $90,000.
(d) Compute the accounts receivable turnover ratio for the year 2017.

P9-2C

Information related to Rhodes Company for 2017 is summarized below.

Total credit sales $1,540,000

Accounts receivable at December 31 520,000
Bad debts written off 26,000

Instructions
(a) What amount of bad debt expense will Rhodes Company report if it uses the direct
write-off method of accounting for bad debts?
(b) Assume that Rhodes Company decides to estimate its bad debt expense to be 2% of
credit sales. What amount of bad debt expense will Rhodes record if Allowance for

14
Doubtful Accounts has a credit balance of $3,000?
(c) Assume that Rhodes Company decides to estimate its bad debt expense based on 5%
of accounts receivable. What amount of bad debt expense will Rhodes Company
record if Allowance for Doubtful Accounts has a credit balance of $4,000?
(d) Assume the same facts as in (c), except that there is a $2,000 debit balance in Allowance for
Doubtful Accounts. What amount of bad debt expense will Rhodes record?
(e) What is the weakness of the direct write-off method of reporting bad debts expense?

P9-5C At December 31, 2017, the trial balance of McCracken Company contained the
following amounts before adjustment.
Accounts Receivable $350,000 Allowance for Doubtful Accounts $ 1,500

Sales Revenue 850,000

Instructions
(a) Prepare the adjusting entry at December 31, 2017, to record bad debt expense under
each of the following independent assumptions.
(1) An aging schedule indicates that $17,550 of accounts receivable will be uncollectible.
(2) The company estimates that 2% of sales will be uncollectible.
(b) Repeat part (a) assuming that instead of a credit balance, there is a $1,500 debit balance in
Allowance for Doubtful Accounts.
(c) During the next month, January 2018, a $4,500 account receivable is written off as
uncollectible. Prepare the journal entry to record the write-off.
(d) Repeat part (c) assuming that McCracken Company uses the direct write-off method
instead of the allowance method in accounting for uncollectible accounts receivable.
(e) What are the advantages of using the allowance method in accounting for
uncollectible accounts as compared to the direct write-off method?

15