1. Compute the estimated uncollectible accounts at the end of the year using the following rates:
Current 1%
1–30 days past due 3%
31–60 days past due 9%
Over 60 days past due 25%
2. As of December 31, 2013, there is a credit balance of $208.20 in Allowance for Doubtful
Accounts. Compute the amount of the adjustment for uncollectible accounts expense that must
be made as part of the adjusting entries.
3. In general journal form, record the adjustment for the estimated losses. Use Uncollectible
Accounts Expense and Allowance for Doubtful Accounts.
4. On May 10, 2014 the $416 account receivable of John Ash was recognized as uncollectible.
Record this entry.
5. On June 12, 2014, a check for $200 was received from Zeke Martin to apply to his account,
which had been written off on November 8, 2013, as uncollectible. Record the reversal of the
previous write-off in the general journal. The cash obtained has already been entered in the
cash receipts journal.
6. Suppose that instead of aging the accounts receivable, the company estimated the uncollectible
accounts to be 2.5 percent of the total accounts receivable on December 31, 2013. Give the
general journal entry to record the adjustment for estimated losses from uncollectible accounts.
Assume that Allowance for Doubtful Accounts has a credit balance of $208.20 before the
adjusting entry.
Analyze: What impact would the change in estimation method described in Instruction 6 have on
the net income for fiscal 2013?
To compute the estimated uncollectible accounts at the end of the year, you would need to follow these steps:
1. Determine the aging categories based on the number of days past due:
- Current: 1%
- 1-30 days past due: 3%
- 31-60 days past due: 9%
- Over 60 days past due: 25%
2. Calculate the total accounts receivable in each aging category by multiplying the respective rate with the total accounts receivable balance.
3. Sum up the amounts calculated in step 2 to get the estimated uncollectible accounts at the end of the year.
Now, let's proceed to answer each question:
1. Compute the estimated uncollectible accounts at the end of the year using the provided rates:
To calculate the estimated uncollectible accounts, multiply the accounts receivable by their respective rates and sum the results. For example:
Estimated uncollectible accounts for Current: Current accounts receivable * 1%
Estimated uncollectible accounts for 1-30 days past due: 1-30 days past due accounts receivable * 3%
And so on... Continue with the calculations for each aging category and then add up the results to get the estimated uncollectible accounts at the end of the year.
2. To compute the amount of the adjustment for uncollectible accounts expense that must be made as part of the adjusting entries, you would need to subtract the existing credit balance in the Allowance for Doubtful Accounts from the estimated uncollectible accounts calculated in question 1.
Adjustment for uncollectible accounts expense = Estimated uncollectible accounts - Allowance for Doubtful Accounts credit balance
3. In general journal form, record the adjustment for the estimated losses using the Uncollectible Accounts Expense and Allowance for Doubtful Accounts.
The journal entry would look something like this:
Date | Account | Debit | Credit
Adjusting entry | Uncollectible Accounts Expense | XXX |
| Allowance for Doubtful Accounts | | XXX
4. To record the recognition of John Ash's uncollectible account of $416, you would need to make a journal entry debiting the Allowance for Doubtful Accounts and crediting Accounts Receivable.
The journal entry would look something like this:
Date | Account | Debit | Credit
May 10, 2014 | Allowance for Doubtful Accounts | $416 |
| Accounts Receivable | | $416
5. To record the reversal of the previous write-off for Zeke Martin's account, you would need to make a journal entry debiting Accounts Receivable and crediting Allowance for Doubtful Accounts.
The journal entry would look something like this:
Date | Account | Debit | Credit
June 12, 2014 | Accounts Receivable | $200 |
| Allowance for Doubtful Accounts | | $200
6. Suppose the company estimated the uncollectible accounts to be 2.5% of the total accounts receivable on December 31, 2013. To record the adjustment for estimated losses from uncollectible accounts, you would need to calculate the adjustment amount using the total accounts receivable and the new estimation rate.
Adjustment for uncollectible accounts expense = Total accounts receivable * 2.5%
Then, record the adjustment in the general journal:
Date | Account | Debit | Credit
Adjusting entry | Uncollectible Accounts Expense | XXX |
| Allowance for Doubtful Accounts | | XXX
Analyze: The change in estimation method described in Instruction 6 would impact the net income for fiscal 2013. If the new estimation rate of 2.5% is lower than the total estimated uncollectible accounts under the previous estimation method, the adjustment for uncollectible accounts expense would be lower. This would result in a higher net income as the company estimates a lower amount of uncollectible accounts. Conversely, if the new estimation rate is higher than the total estimated uncollectible accounts under the previous method, it would lead to a lower net income as the company estimates a higher amount of uncollectible accounts.