Ultra Leather Products sells leather clothing at both wholesale and retail. The company has found

that there is a higher rate of uncollectible accounts from retail credit sales than from wholesale
credit sales. Ultra computes its estimated loss from uncollectible accounts at the end of each year.
The amount is based on the rates of loss that the firm has developed from experience for each division.
A separate computation is made for each of the two types of sales. The firm uses the percentage
of net credit sales method.
As of December 31, 2013, Accounts Receivable has a balance of $392,000, and Allowance for
Doubtful Accounts has a debit balance of $326.80. The following table provides a breakdown of
the credit sales for the year 2013 and the estimated rates of loss:
Category Amount Estimated Rate of Loss
Wholesale $2,040,000 0.5%
Retail 548,600 1.2%
INSTRUCTIONS
1. Compute the estimated amount of uncollectible accounts expense for each of the two
categories of net credit sales for the year.
2. Prepare an adjusting entry in general journal form to provide for the estimated uncollectible
accounts on December 31, 2013. Use Uncollectible Accounts Expense.
3. Show how Accounts Receivable and Allowance for Doubtful Accounts should appear on the
balance sheet of Ultra Leather Products as of December 31, 2013.
4. On January 20, 2014, the account receivable of Delphi Clothiers, amounting to $830, is
determined to be uncollectible and is to be written off. Record this transaction in the general
journal.
5. On November 26, 2014, the attorneys for Ultra turned over a check for $830 that they obtained
from Delphi Clothiers in settlement of its account, which had been written off on January 20.
The money has already been recorded in the cash receipts journal. Give the general journal
entry to reverse the original write-off.

1. To compute the estimated amount of uncollectible accounts expense for each of the two categories of net credit sales for the year, you will need to multiply the net credit sales by the estimated rates of loss for each category.

For Wholesale:
Estimated Uncollectible Accounts Expense for Wholesale = Wholesale Credit Sales * Estimated Rate of Loss for Wholesale
= $2,040,000 * 0.5%

For Retail:
Estimated Uncollectible Accounts Expense for Retail = Retail Credit Sales * Estimated Rate of Loss for Retail
= $548,600 * 1.2%

2. To prepare an adjusting entry in general journal form to provide for the estimated uncollectible accounts on December 31, 2013, you will need to debit the Uncollectible Accounts Expense and credit the Allowance for Doubtful Accounts. The amounts to be debited and credited will be the estimated amounts of uncollectible accounts expense for each category of net credit sales.

Adjusting entry:
Debit - Uncollectible Accounts Expense
Credit - Allowance for Doubtful Accounts

3. On the balance sheet of Ultra Leather Products as of December 31, 2013, Accounts Receivable should be reported at its original balance of $392,000, and Allowance for Doubtful Accounts should be reported at its updated balance after the adjusting entry is recorded. The net value of Accounts Receivable (original balance minus Allowance for Doubtful Accounts balance) should also be reported as an asset on the balance sheet.

Balance Sheet presentation:

Accounts Receivable: $392,000
Allowance for Doubtful Accounts: Credit balance (after the adjusting entry)
Net Accounts Receivable: Accounts Receivable - Allowance for Doubtful Accounts

4. To record the write-off of Delphi Clothiers' account on January 20, 2014, an entry needs to be made in the general journal. The Uncollectible Accounts Expense should be debited, and Delphi Clothiers' account should be credited.

General journal entry:
Debit - Uncollectible Accounts Expense
Credit - Delphi Clothiers' Account

5. To reverse the original write-off on November 26, 2014, when the attorneys for Ultra turned over a check for $830 obtained from Delphi Clothiers, you need to reverse the previous write-off by debiting Delphi Clothiers' Account and crediting Uncollectible Accounts Expense. Ensure that the check amount is recorded as a cash receipt in the cash receipts journal.

General journal entry:
Debit - Delphi Clothiers' Account
Credit - Uncollectible Accounts Expense

1. To compute the estimated amount of uncollectible accounts expense for each category of net credit sales for the year, you need to multiply the credit sales amount by the estimated rate of loss.

Estimated uncollectible accounts expense for Wholesale:
$2,040,000 x 0.5% = $10,200

Estimated uncollectible accounts expense for Retail:
$548,600 x 1.2% = $6,583.20

2. The adjusting entry to provide for the estimated uncollectible accounts on December 31, 2013, can be recorded as follows:

Date: December 31, 2013
Account: Uncollectible Accounts Expense
Debit: $16,783.20
Account: Allowance for Doubtful Accounts
Credit: $16,783.20

3. On the balance sheet of Ultra Leather Products as of December 31, 2013, Accounts Receivable and Allowance for Doubtful Accounts should appear as follows:

Accounts Receivable: $392,000
Allowance for Doubtful Accounts: -$16,783.20

The Allowance for Doubtful Accounts is shown as a contra-asset account with a credit balance because it reduces the Accounts Receivable amount to the net realizable value.

4. To record the write-off of Delphi Clothiers' uncollectible account on January 20, 2014, you can use the following general journal entry:

Date: January 20, 2014
Account: Allowance for Doubtful Accounts
Debit: $830
Account: Accounts Receivable
Credit: $830

5. To reverse the original write-off when the check is received from Delphi Clothiers on November 26, 2014, you can use the following general journal entry:

Date: November 26, 2014
Account: Accounts Receivable
Debit: $830
Account: Allowance for Doubtful Accounts
Credit: $830