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Analysis of receivables method

At the end of the current year, Accounts Receivable has a balance of $5,125,000; Allowance for Doubtful Accounts has a debit balance of $32,600; and sales for the year total $105,550,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $225,000.

a. Determine the amount of the adjusting entry for uncollectible accounts.
fill in the blank 1 of 1$

b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense.

Line Item Description Amount
Accounts Receivable $fill in the blank 2
Allowance for Doubtful Accounts $fill in the blank 3
Bad Debt Expense $fill in the blank 4
c. Determine the net realizable value of accounts receivable.
fill in the blank 1 of 1$

1 answer

To analyze the receivables method and calculate the required values, let's break down the information provided and use it to address each question.

Part a: Adjusting Entry for Uncollectible Accounts

  1. Current Balance of Allowance for Doubtful Accounts: The current balance is a debit balance of $32,600.
  2. Estimated Allowance for Doubtful Accounts: According to the aging method, the estimated balance needed is $225,000.

To determine the adjusting entry, we will calculate how much we need to adjust the allowance account to reach the required balance:

  • Required balance = $225,000
  • Current balance (debit) = $32,600

The adjusting entry needs to account for this debit balance. Hence, the amount needed is calculated as follows:

\[ \text{Adjusting entry} = \text{Required balance} + \text{Current debit balance} = 225,000 + 32,600 = 257,600 \]

So, the adjusting entry for uncollectible accounts is $257,600.

Part b: Adjusted Balances

Now we need to summarize the adjusted balances for Accounts Receivable, Allowance for Doubtful Accounts, and calculate Bad Debt Expense.

  1. Accounts Receivable: The balance remains unchanged at $5,125,000.
  2. Allowance for Doubtful Accounts: After the adjustment, the balance will be adjusted to $225,000 (as calculated previously).
  3. Bad Debt Expense: This is effectively the amount of the adjusting entry, which is $257,600.

Summary of Adjusted Balances:

  • Accounts Receivable: $5,125,000
  • Allowance for Doubtful Accounts: $225,000
  • Bad Debt Expense: $257,600

Part c: Net Realizable Value of Accounts Receivable

Finally, we need to calculate the net realizable value of accounts receivable:

\[ \text{Net Realizable Value} = \text{Accounts Receivable} - \text{Allowance for Doubtful Accounts} \]

Calculating this gives us:

\[ \text{Net Realizable Value} = 5,125,000 - 225,000 = 4,900,000 \]

Final Results:

  • Adjusting entry for uncollectible accounts (Fill in the blank 1): $257,600
  • Accounts Receivable (Fill in the blank 2): $5,125,000
  • Allowance for Doubtful Accounts (Fill in the blank 3): $225,000
  • Bad Debt Expense (Fill in the blank 4): $257,600
  • Net Realizable Value of Accounts Receivable (Fill in the blank 1): $4,900,000