On January 1, 2018, the general ledger of ACME Fireworks includes the following

Question

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:
  

  Accounts Debit Credit   Cash $ 27,000   Accounts Receivable 50,000   Allowance for Uncollectible Accounts $ 6,100   Inventory 21,900   Land 65,000   Equipment 24,500   Accumulated Depreciation 3,400   Accounts Payable 30,400   Notes Payable (6%, due April 1, 2019) 69,000   Common Stock 54,000   Retained Earnings 25,500        Totals $ 188,400 $ 188,400
At the end of January, $30,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 5% will not be collected.

Explanation / Answer

Total Estimated uncollectibles at the end of January = ($30,000*30%)+[($50,000-$30,000)*5%]

= $9,000+1,000 = $10,000

Beg. Balance in Allowance for Uncollectible accounts = $6,100 credit

Bad debt expense for January = $10,000 - $6,100 = $3,900

Journal Entry (Amounts in $)

Ending Balance in Allowance for Uncollectible Accounts = $6,100+$3,900 = $10,000

Gross Accounts Receivable = $50,000

Net Accounts Receivable as on January 31= $50,000 - $10,000 = $40,000

Date Account Titles and Explanations Debit Credit 01/31/2018 Bad debt expense 3,900 Allowance for Uncollectible Accounts 3,900 (To record the bad debt expense for January)

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