E8–6
Req. 1
Total
Young
Old
Accounts Receivable
$ 500,000
$ 100,000
$ 400,000
Estimated Uncollectible (%)
x 5 %
x 40 %
Estimated Uncollectible ($)
$ 165,000
$ 5,000
$160,000
Req. 2
Allowance for Doubtful Accounts
40,000
125,000
Unadjusted Bal.
Adjustment
165,000 Desired balance
The aging method gives us the ending balance in Allowance for Doubtful Accounts
($165,000). To reach this balance, we must increase the Allowance for Doubtful
Accounts by crediting it for $125,000 (and debiting Bad Debt Expense).
Req. 3
Allowance for Doubtful Accounts
Unadjusted Bal.
5,000
170,000
Adjustment
165,000 Desired balance
Because the account has a $5,000 debit balance and the aging method gives us a
credit balance of $165,000, we must credit $170,000 to the account (along with a debit
to Bad Debt Expense).
Req. 4
The Allowance for Doubtful Accounts could have a debit balance if the company were to
write off more accounts receivable than was previously estimated and recorded in the
Allowance for Doubtful Accounts.
E8–7
Req. 1
Total
1–30
31–90
> 90
Accounts Receivable
$ 20,000
$ 12,000
$ 5,000
$ 3,000
Estimated Uncollectible (%)
x 5 %
x 10 %
x 20 %
Estimated Uncollectible ($)
$ 1,700
$ 600
$ 500
$ 600
Req. 2
Allowance for Doubtful Accounts
800
Unadj. Bal.
900
Adjustment
1,700
Desired Bal.
Unadj. Bal.
600
2,300
Adjustment
1,700
Adj. Bal.
E8–8
Req.1
November 30 Adjusting Journal Entry:
Bad Debt Expense ……………………………………………………… 500
Total
1–30
31–90
> 90
Accounts Receivable
$ 89,000
$ 75,000
$ 10,000
$ 4,000
Estimated Uncollectible (%)
x 10 %
x 20 %
x 40 %
Estimated Uncollectible ($)
$11,100
$ 7,500
$ 2,000
$ 1,600
Req. 3
Allowance for Doubtful Accounts
1,600
Unadj. Bal.
9,500
Adjustment
11,100
Desired Bal.
E8–9
Req. 1
(a) Accounts Receivable ……………………………………….. 25,000
Service Revenue ……………………………………… 25,000
(b) Allowance for Doubtful Accounts ……………………….. 1,500
Accounts Receivable ………………………………… 1,500
E8–10
a. July 1, 2014
Notes Receivable ………………………………………………….. 70,000
Cash …………………………………………………………… 70,000
b. Dec. 31, 2014
E8–11
a. Jan 1
Notes Receivable ………………………………………………….. 50,000
Cash …………………………………………………………… 50,000
b. June 30
E8–12
(a) Nov. 1, 2014……………………………………………………………….
Notes Receivable ……………………………………………. 100,000
Cash ………………………………………………………. 100,000
(b) Dec. 31, 2014……………………………………………………………..
E8–13
Req. 1
Bad Debt Expense has the effect of increasing (crediting) the Allowance for Doubtful
Accounts. We are given the beginning and ending balances in the Allowance account,
so we can solve for write-offs, which decrease (debit) the Allowance. See the following
E8–13 (continued)
Req. 3
E8–14
The Allowance for Doubtful Accounts is increased (credited) when Bad Debt Expense is
recorded and decreased (debited) when uncollectible accounts are written off. This
exercise gives the beginning and ending balances of the Allowance account and the
amount of uncollectible accounts that were written off. Therefore, the amount of Bad
E8–15
Transaction
Net Credit
Sales
Average Net Accounts
Receivable
Receivables
Turnover Ratio
a.
NE
NE
NE
b.
NE
–
+
E8–16
Req. 1
Receivables turnover
ratio
=
Net Sales
=
$44,000
=
9.1 times
Average Net
Accounts Receivable
$4,850 *
E8–17 (continued)
Req. 2
TREVORSON ELECTRONICS
Income Statement
For the Years Ended December 31
2015
2016
Service Revenue
$30,000
$5,000
Operating Expenses
Bad Debt Expense
4,000
Net Income
$30,000
$1,000
2015 was not as profitable as indicated because $4,000 of the revenue reported was
not going to be collected. 2016 was not as bad as indicated because $4,000 of Bad
Debt Expense actually belonged to revenues from the previous year. To receive better
information about profitability, Jon needs to use the allowance method of accounting for
uncollectible accounts.
8– 20 Solutions Manual
© 2016 by McGraw– Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
ANSWERS TO COACHED PROBLEMS
CP8–1
Req.1
Bad Debt Expense …………………………………………………… 395,780
Allowance for Doubtful Accounts ……………………….. 395,780
($158,312,000 x 0.0025 = $395,780)
Req. 2