Chapter 5, Problem 5.3AP

Record transactions related to accounts receivable (LO5–3, 5–5)

The following events occur for The Underwood Corporation during 2018 and 2019, its first two years of operations.

June 12, 2018	Provide services to customers on account for $41,000.
September 17, 2018	Receive $25,000 from customers on account.
December 31, 2018	Estimate that 45% of accounts receivable at the end of the war will not be received.
March 4, 2019	Provide services to customers on account for $56,000.
May 20, 2019	Receive $10,000 from customers for services provided in 2018.
July 2, 2019	Write off the remaining amounts owed from services provided in 2018.
October 19, 2019	Receive $45,000 from customers for services provided in 2019.
December 31, 2019	Estimate that 45% of accounts receivable at the end of the year will not be received.

Required:

  1.    Record transactions for each date.

  2.    Post transactions to the following accounts: Cash, Accounts Receivable, and Allowance for Uncollectible Accounts.

  3.    Calculate the net realizable value of accounts receivable at the end of 2018 and 2019.

To determine

To record: The transactions of Company U for each date.

Answer to Problem 5.3AP

Date	Account Title and Explanation		Debit ($)	Credit ($)
June 12 ,2018	Accounts receivable		41,000
		Service revenue		41,000
	(To record the service  provided on account)
September 17, 2018	Cash		25,000
		Accounts receivable		25,000
	(To record the receipt of cash on account)
December 31, 2018	Bad debt expense (2)		7,200
		Allowance for uncollectible accounts		7,200
	(To record the estimation of future bad debts)
March 4, 2019	Accounts receivable		56,000
		Service Revenue		56,000
	(To record the services provided on account )
May 20, 2019	Cash		10,000
		Accounts receivable		10,000
	(To record receipt of cash on account)
July 2, 2019	Allowance for uncollectible accounts		6,000
		Accounts receivable		6,000
	(To record the writing-off of actual bad debts)
October 19, 2019	Cash		45,000
		Accounts receivable		45,000
	(To record the  receipt of cash from customer on account)
December 31, 2019	Bad debt expense (5)		3,750
		Allowance for uncollectible accounts		3,750
	(To record the estimation of future bad debts)

Table (1)

Explanation of Solution

Accounts receivable:

Accounts receivable is an asset of the firm, which refers to the amount which the company would receive in near future for the goods or services provided; hence it is reported in the balance sheet.

Working notes:

Calculate Estimate future bad debts On December 31, 2018:

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on June 12, 2018}-\\ \text{Received cash from customers on account on September 17, 2018}\end{array}\right]\\ =\$41,000-\$25,000\\ =\$16,000\end{array}$ (1)

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{estimated percentage of uncollectible accounts}\end{array}\right]\\ =\$16000(1)\times 45\%\\ =\$7,200\end{array}$ (2)

Calculate Estimate future bad debts On December 31, 2019:

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on March 4, 2019}-\\ \text{Received cash from customers on account on October 19, 2019}\end{array}\right]\\ =\$56,000-\$45,000\\ =\$11,000\end{array}$ (3)

$\begin{array}{c}\left[\begin{array}{l}\text{Balance in allowance for }\\ \text{uncollectible accounts after write off}\end{array}\right]\text{=}\left[\begin{array}{l}\text{Allowance for uncollectible accounts on }\\ \text{December 31,2018}-\\ \text{Write-off actual bad debts on July 2, 2019}\end{array}\right]\\ =\$7,200-\$6,000\\ =\$1,200\end{array}$ (4)

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{Estimated Percentage of uncollectible accounts}-\\ \text{Balance in allowance for }\\ \text{uncollectible accounts after write off}\end{array}\right]\\ =\$11000(3)\times 45\%-\$1,200(4)\\ =\$3,750\end{array}$ (5)

To determine

To post: Transactions to the following accounts: Cash, Accounts receivable, and Allowance for uncollectible accounts.

Answer to Problem 5.3AP

For 2018:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
September 17, 2018	Accounts receivable	$25,000
December 31, 2018	Balance (Balancing figure)	$25000

Table (2)

For 2019:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
January 1, 2019	Beginning balance	$25,000
May 20, 2019	Accounts receivable	$10,000
October 19, 2019	Accounts receivable	$45,000
December 31, 2019	Balance (balancing figure)	$80,000

Table (3)

For 2018:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
June 12, 2018	Service revenue	$41,000	September 17, 2018	Cash	$25000
December 31, 2018	Balance (Balancing figure)	$16,000

Table (4)

For 2019:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
March 4, 2019	Service revenue	$56,000	May 20, 2019	Cash	$10,000
			July 2, 2019	Allowance for uncollectible accounts	$6,000
			October 19, 2019	Cash	45,000
December 31, 2019	Balance (balancing figure)	$11,000

Table (5)

For 2018:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
			December 31, 2018	Bad debt expense	$7,200

Table (6)

For 2019:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
July 2, 2019	Accounts receivable	$6,000	December 31, 2019	Bad debt expense	$3,750
			December 31, 2019	Balance (balancing figure)	$4,950

Table (7)

Explanation of Solution

Accounts receivable:

Accounts receivable is an asset of the firm, which refers to the amount which the company would receive in near future for the goods or services provided; hence it is shown in the balance sheet.

To determine

To Calculate: The net realizable value of accounts receivable at the end of 2018 and 2019.

Answer to Problem 5.3AP

Calculate the net realizable value of accounts receivable at the end of 2018 and 2019:

Years	2018	2019
Total accounts receivable	$16,000	$11,000
Less: Allowance for uncollectible accounts	($7,200)	($4,950)
Net realizable value	$8,800	$6,050

Table (8)

Explanation of Solution

Accounts receivable:

Accounts receivable is an asset of the firm, which refers to the amount which the company would receive in near future for the goods or services provided; hence it is shown in the balance sheet.

Conclusion

Hence, the net realizable value of Company U for the year 2018 is $8,800 and for the year 2019 is $6,050.