Presented below is information related to the Accounts Receivable accounts of Ma
ID: 2335479 • Letter: P
Question
Presented below is information related to the Accounts Receivable accounts of Martinez Inc. during the current year 2017.
1. An aging schedule of the accounts receivable as of December 31, 2017, is as follows.
Age
Net Debit Balance
% to Be Applied after
Correction Is Made
*The $3,200 write-off of receivables is related to the 91-to-120 day category
2. The Accounts Receivable control account has a debit balance of $369,700 on December 31, 2017.
3. Two entries were made in the Bad Debt Expense account during the year: (1) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (2) a credit for $3,200 on November 3, 2017, and a debit to Allowance for Doubtful Accounts because of a bankruptcy.
4. Allowance for Doubtful Accounts is as follows for 2017.
Allowance for Doubtful Accounts
5. A credit balance exists in the Accounts Receivable (60–90 days) of $5,100, which represents an advance on a sales contract.
Assuming that the books have not been closed for 2017, make the necessary correcting entries.
Date
Account Titles and Explanation
Debit
Credit
(To correct bad debt expense and write off accounts receivable)
(To reclassify credit balance in accounts receivable)
(To write off uncollectible accounts)
(To reduce allowance for doubtful account balance)
Age
Net Debit Balance
% to Be Applied after
Correction Is Made
estimated remainder uncollectible is 27% $369,700
Explanation / Answer
Answers
Adjustments
Adjusted Balance
% to be applied
Amount Uncollectible
Under 60 days
$ 170,800.00
$ 170,800.00
1%
$ 1,708.00
60 - 90 days
$ 136,500.00
$ 5,100.001
$ 141,600.00
4%
$ 5,664.00
91 - 120 days
$ 38,600.00
$ (3,200.00)2
$ 35,400.00
6%
$ 2,124.00
Over 120 days
$ 23,800.00
$ 23,800.00
27%
$ 9,127.003
TOTAL
$ 369,700.00
$ 1,900.00
$ 371,600.00
$ 18,623.00
1: $ 5,100 received as advance is ‘credit’ balance and reducing the accounts receivables balance. This will have to be shown on Liabilities side, and hence accounts receivables balance will increase.
2: $ 3200 of accounts written off is reduced from the balance available.
3: $ 3700 is definitely uncollectible PLUS 27% of remaining. $23800 – 3700 = $ 20,100 x 27% = $ 5,427. Total Uncollectible for “over 120 days” = 3700 + 5427 = $ 9,127
Beginning Balance of Allowance Account
$ 9,400.00
Accounts written off
$ (3,200.00)
Unadjusted balance
$ 6,200.00
Adjusted balance required as Uncollectible
$ 18,623.00 [see working #1]
Amount of Bad Debt Expense
$ 12,423.00 [18623 – 6200]
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2017
Bad Debt Expenses
$ 3,200.00
Accounts receivables
$ 3,200.00
(To correct bad debt expense and write off accounts receivable)
Dec. 31, 2017
Accounts receivables
$ 5,100.00
Unearned Revenue
$ 5,100.00
(To reclassify credit balance in accounts receivable)
Dec. 31, 2017
Allowance for Uncollectible accounts
$ 3,700.00
Accounts receivables
$ 3,700.00
(To write off uncollectible accounts)
Dec. 31, 2017
Bad Debt Expenses
$ 12,423.00
Allowances for Uncollectible accounts
$ 12,423.00
(To reduce allowance for doubtful account balance)
Adjustments
Adjusted Balance
% to be applied
Amount Uncollectible
Under 60 days
$ 170,800.00
$ 170,800.00
1%
$ 1,708.00
60 - 90 days
$ 136,500.00
$ 5,100.001
$ 141,600.00
4%
$ 5,664.00
91 - 120 days
$ 38,600.00
$ (3,200.00)2
$ 35,400.00
6%
$ 2,124.00
Over 120 days
$ 23,800.00
$ 23,800.00
27%
$ 9,127.003
TOTAL
$ 369,700.00
$ 1,900.00
$ 371,600.00
$ 18,623.00