Analyze the effects of accounts receivable transactions using the percentage of sales method

Evaluate the following scenarios, assuming both companies use the net credit sales as the basis for estimating bad debts expense:

a. At year end, Bonnie Company has accounts receivable of $112,000. The allowance for uncollectible accounts has a balance prior to adjustments of $(400). In other words, there were fewer specific write-offs than estimated., leaving an excess in the allowance account. Net credit sales for the year were $315,000 and 3% is estimated to be uncollectible.

b. At year end, Clyde Company has acounts receivable of $220,000. The allowance for uncollectible accounts has a balance prior to adjustment of $200. In other words, more specific accounts were written off than estimated, so the allowance was short by $200. Net credit sales for the year were $1,525,000 and 1% is estimated to be uncollectible.

Requirements

for each situation compute the following:

1. the bad debts expense for the year

2. the balance in the allowance for uncollectible accounts account at year end

3. the net realizable value of accounts receivable at year end

4. assuming Bonnie company had an accounts receivable (net) balance of $105,000 at the beginning of the year, what is Bonnie accounts receivable turnover ratio for the year

5. Assuming Clyde Company had an accounts receivable (net) balance of $226,000 at the beginning of the year, what is Clyde’s accounts receivable turnover ratio for the year?

Sheet1

A

2,000

9

,000

11

15

Balances at year end:

Accounts receivable

0,000

22 Net credit sales

,000

Percentage estimated to be uncollectible

,000

25 Bad debt expense for the year

26 Allowance for uncollectible accounts balance

Net realizable value of accounts receivable

Average net accounts receivables

Accounts receivable turnover ratio

																																																																																																														Problem 4-4	9	A	Name
Section
B	C	D	E	F	G	H
5	Situation a.	Bonnie Company
6		Balances at year end:
7		Accounts receivable	$	11
8	Allowance for uncollectible accounts (credit balance)	400
	Net credit sales	$ 3	15
10		Percentage estimated to be uncollectible	3%
Beginning accounts receivable balance for part 4	$ 105,000
12		Bad debt expense for the year	Formula 1
13		Allowance for uncollectible accounts balance	Formula 2
14		Net realizable value of accounts receivable	Formula 3
	Average net accounts receivables	Formula 4
16		Accounts receivable turnover ratio	Formula 5
17
18	Situation b.	Clyde Company
19
20	$	22
21	Allowance for uncollectible accounts (debit balance)	200
$ 1,5	25
23	1%
24	Beginning accounts receivable balance for part 5	$ 2	26
Formula 6
Formula 7
27	Formula 8
28	Formula 9
29	Formula 10
30
End of Problem

&LReimers, Financial Accounting 3e

Sheet2

Sheet3