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AC1220 Lab 4.2

 

Introduction

Jake’s Computer Sales and Repair has an accounts receivable balance of $6,520 as of May 31, 20×1. Jake maintains an aging-of-accounts schedule listing a time outstanding (or “age”) of the invoice amounts that make up each customer’s receivable balance.

 

Requirement 1

a.     Compute the estimated uncollectible amount for each customer in the aging schedule. Enter amounts in the appropriate cells, rounding to the nearest dollar.

b.     Compute the total estimated allowance for the uncollectible account balance. Enter the amount in the appropriate cell.

 

Uncollectible Accounts Schedule at May 31, 20×1

Customer Name

Account Number

1-30 Days

31-60 Days

61-90 Days

Over 90 Days

Totals

Atterbury

1001

$850

$250

$1,100

Smith

1002

1,320

2,900

$480

$4,700

Walten

1003

50

40

$90

Total

$2,170

$3,150

$530

$40

$6,520

Estimated percent uncollectible

x 2%

x 5%

x 10%

x 90%

 

Estimated allowance for uncollectible accounts

 

 

 

 

 

 


 

Requirement 2

a.     Make the necessary journal entry to establish an allowance for the uncollectible accounts account.  Use the target allowance for the uncollectible accounts balance computed in Requirement 1.

 

DATE

DETAILS

DEBIT

CREDIT

5/31/x1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

b.     Post the entry from Requirement 2a and account receivable balance to the following T-Accounts:

 

Uncollectible Account Expense

 

Allowance for Uncollectible Accounts

 

Accounts Receivable

 

 

 

 

 

 

 

 

               

 

c.       Show the disclosure of net accounts receivable in the following partial balance sheet:

 

In the current assets section of the balance sheet:

 

 

 

 

Accounts Receivable, Net

 

 


 

Requirement 3

Jake is informed in writing that a customer, Walten, has filed for bankruptcy and will be unable to settle an account receivable of $90.

Make the journal entry necessary to write off this amount.

 

DATE

DETAILS

DEBIT

CREDIT

5/31/x1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Requirement 4

Jake receives notice from Walten’s attorney that Jake’s Computer Sales and Repair will receive $0.50 on the dollar of the $90 account receivable previously written off. A check for that amount is included.

 

Journalize the partial reinstatement and recovery of Walten’s account receivable.

 

DATE

DETAILS

DEBIT

CREDIT

5/31/x1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Requirement 5

Customer Smith’s account receivable balance of $480 is more than 60 days old. Jake and Smith agree to reclassify this amount as a note payable with a six-month maturity and a 15 percent annual interest rate.

 

Jake makes the following journal entry:

 

DATE

DETAILS

DEBIT

CREDIT

5/31/x1

Note Receivable

$480

 

 

                  Accounts Receivable

 

$480

 

To record 15% note receivable

 

 

 

 

 

 

 

Compute the interest and principle components of the payment that Smith will make on June 30, 20×1, on the note payable.

Hint: Principal x Interest Rate x Days/365 = Amount of Interest

 

 

 

 

 

 

 

 

Requirement 6

 

Requirement 6

Jake considers using the direct write-off method to account for uncollectible accounts.  He would debit the uncollectible account expense and credit the accounts receivable account only when an account receivable is deemed uncollectible. The allowance method seems tedious because it involves first estimating uncollectible accounts in the current period and then debiting an allowance for the uncollectible accounts account. Furthermore, Jake reasons that the direct wrote-off method is better because an allowance for uncollectible accounts is only an estimate, whereas the direct-write off method is based on a known amount.

Should Jake continue using the allowance method to account for uncollectible accounts? Provide two reasons why the direct write-off method might be unacceptable, according to generally accepted accounting principles (GAAP).

 

 

 

 

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