a. What is the required allowance balance on December 31, 2018? b. Prepare the journal entry necessary to bring the Vienna Company's allowance for credit loss to the balance indicated in the aging analysis. c. What is the net realizable value of Vienna Company's accounts receivable at December 31, 2018? d. Vienna should report expected credit loss for 2018 of e. Vienna's total credit sales for 2018 is
a. What is the required allowance balance on December 31, 2018? b. Prepare the journal entry necessary to bring the Vienna Company's allowance for credit loss to the balance indicated in the aging analysis. c. What is the net realizable value of Vienna Company's accounts receivable at December 31, 2018? d. Vienna should report expected credit loss for 2018 of e. Vienna's total credit sales for 2018 is
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Question
Transcribed Image Text:a. What is the required allowance balance on December 31, 2018?
b. Prepare the journal entry necessary to bring the Vienna Company's
allowance for credit loss to the balance indicated in the aging
analysis.
c. What is the net realizable value of Vienna Company's accounts
receivable at December 31, 2018?
d. Vienna should report expected credit loss for 2018 of
e. Vienna's total credit sales for 2018 is
Transcribed Image Text:4. Vienna Company produces herbal tea and other slimming products that
are sold throughout the Philippines. While the company is
experiencing a steady growth in sales, it has become noticeable that
collections of accounts receivable from customers are no longer as
fast as they used to be.
Vienna Company's products are sold on payment terms of 2/10, n/30.
In the past, more than 75% of the credit customers have availed of
the discount by paying within the discount period. During the year
ended December 31, 2018, there has been an increase in the number of
customers taking the full 30 days to pay. The company estimates that
less than 60% of the customers are taking advantage of the discount.
Expected credit losses as a percentage of gross credit sales have
increased from the 1.5% provided in the prior years to about 4% in
the current year.
The deterioration of accounts receivable collections has prompted the
company's controller to prepare the following report.
Accounts Receivable Collections.
December 31, 2018
I.
II.
IV.
It is normal that some receivables will prove uncollectible. In
fact, annual bad debt write-offs had been 1.5% of total credit
sales for many years. However, this rate has increased to 4%
during the current year.
V.
The accounts receivable balance at December 31, 2018, is
P3,000,000. The condition of this balance in terms of age and
probability of collection is presented below.
Proportion
of Total
64%
18%
8%
5%
3%
2%
Age Categories
1 to 10 days
11 to 30 days
Past due 31 to 60 days
Past due 61 to 120 days
Past due 121 to 180 days
Past due over 180 days
Probability
of Collection
99%
97.5%
III. The allowance for credit loss had a credit balance of P54, 600
2018.
95%
80%
65%
20%
on January 1,
The P640,000 expected credit loss provided during the year is
based on the assumption that 4% of the total credit sales will
be uncollectible.
Accounts written-off during the year totaled P585,000
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Step 1: Introduction
VIEWStep 2: Calculation of allowance amount as at December 31, 2018
VIEWStep 3: Statement showing calculation of expected loss using the aging schedule
VIEWStep 4: Preparation of Journal Entry
VIEWStep 5: Calculation of amount of Net realizable value of Accounts Receivale
VIEWStep 6: Reportinmg of estimated credit loss
VIEWStep 7: Calculation of credit sales for the year
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