pey's Bike Shop sells new and used bicycle parts. Although a majority of its sales are cash sales, it makes a significant amount of edit sales. During Year 1, its first year of operations, Joey's Bike Shop experienced the following. Sales on account Cash sales Collections of accounts receivable Uncollectible accounts charged off during the year $288,300 696,700 273,885 1,413 equired Assume that Joey's Bike Shop uses the allowance method of accounting for uncollectible accounts and estimates that 1 percent of its sales on account will not be collected. Answer the following questions: (1) What is the Accounts Receivable balance at December 31, Year 1? (2) What is the ending balance of the Allowance for Doubtful Accounts at December 31, Year 1, after all entries and adjusting entrie are posted? (3) What is the amount of uncollectible accounts expense for Year 1? (4) What is the net realizable value of accounts receivable at December 31, Year 1?

pey's Bike Shop sells new and used bicycle parts. Although a majority of its sales are cash sales, it makes a significant amount of edit sales. During Year 1, its first year of operations, Joey's Bike Shop experienced the following. Sales on account Cash sales Collections of accounts receivable Uncollectible accounts charged off during the year $288,300 696,700 273,885 1,413 equired Assume that Joey's Bike Shop uses the allowance method of accounting for uncollectible accounts and estimates that 1 percent of its sales on account will not be collected. Answer the following questions: (1) What is the Accounts Receivable balance at December 31, Year 1? (2) What is the ending balance of the Allowance for Doubtful Accounts at December 31, Year 1, after all entries and adjusting entrie are posted? (3) What is the amount of uncollectible accounts expense for Year 1? (4) What is the net realizable value of accounts receivable at December 31, Year 1?

Financial Accounting

14th Edition

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Carl Warren, Jim Reeve, Jonathan Duchac

Chapter9: Receivables

Section: Chapter Questions

Problem 5CP

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Concept explainers

Master Budget

A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.

Sales Budget and Selling

A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.

Question

Joey's Bike Shop sells new and used bicycle parts. Although a majority of its sales are cash sales, it makes a significant amount of
credit sales. During Year 1, its first year of operations, Joey's Bike Shop experienced the following.
Sales on account
Cash sales
Collections of accounts receivable
Uncollectible accounts charged off during the year
$288,300
696,700
273,885
1,413
Required
a. Assume that Joey's Bike Shop uses the allowance method of accounting for uncollectible accounts and estimates that 1 percent of
its sales on account will not be collected. Answer the following questions:
(1) What is the Accounts Receivable balance at December 31, Year 1?
(2) What is the ending balance of the Allowance for Doubtful Accounts at December 31, Year 1, after all entries and adjusting entries
are posted?
(3) What is the amount of uncollectible accounts expense for Year 1?
(4) What is the net realizable value of accounts receivable at December 31, Year 1?

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Step 1: Introduction

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Step 2: 1) The calculation of Accounts Receivable, December 31, year 1 is as follows-

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Step 3: 2) The calculation of Allowance for Doubtful Accounts, December 31 is as follows-

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Step 4: 3) The calculation of uncollectible accounts expenses is as follows-

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Step 5: 4) The net realizable value on December 31, year 1 is as follows-

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Follow-up Question

### Accounting for Uncollectible Accounts: Direct Write-Off Method

#### Scenario:
Assume that Joey’s Bike Shop uses the direct write-off method of accounting for uncollectible accounts. Answer the following questions:

1. **What is the Accounts Receivable balance at December 31, Year 1?**
2. **What is the amount of uncollectible accounts expense for Year 1?**
3. **What is the net realizable value of accounts receivable at December 31, Year 1?**

This inquiry requires understanding the direct write-off method, where bad debts are written off directly against income at the point they are deemed uncollectible.

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