From inception of operations, Savvy Company carried no allowance for doubtful accounts. Uncollectible receivables were expensed as written off and recoveries were credited to income as collected. During the current year, management recognized that the accounting policy with respect to doubtful accounts was not correct, and determined that an allowance for doubtful accounts was necessary. A policy was established to maintain an allowance for doubtful accounts based on historical bad debt loss percentage applied to year-end accounts receivable. The historical bad debt loss percentage is to be recomputed each year based on all available past years up to a maximum of five years. Accounts Year Credit sales written off Recoveries 15,000 40,000 50,000 65,000 88,000 0. 1,500,000 2,200,000 3,000,000 3,300,000 4,000,000 2016 2,000 3,000 5,000 10,000. 2017 2018 2019 2020 Accounts receivable balances were P1,250,000 and P2,000,000 on January 1, 2020 and December 31, 2020, respectively. Required: 1. Prepare journal entry to set up the allowance for doubtful accounts on January 1, 2020. 2. Compute the doubtful accounts expense for the current year, 3. Determine the net realizable value of accounts receivable on December 31, 2020.

From inception of operations, Savvy Company carried no allowance for doubtful accounts. Uncollectible receivables were expensed as written off and recoveries were credited to income as collected. During the current year, management recognized that the accounting policy with respect to doubtful accounts was not correct, and determined that an allowance for doubtful accounts was necessary. A policy was established to maintain an allowance for doubtful accounts based on historical bad debt loss percentage applied to year-end accounts receivable. The historical bad debt loss percentage is to be recomputed each year based on all available past years up to a maximum of five years. Accounts Year Credit sales written off Recoveries 15,000 40,000 50,000 65,000 88,000 0. 1,500,000 2,200,000 3,000,000 3,300,000 4,000,000 2016 2,000 3,000 5,000 10,000. 2017 2018 2019 2020 Accounts receivable balances were P1,250,000 and P2,000,000 on January 1, 2020 and December 31, 2020, respectively. Required: 1. Prepare journal entry to set up the allowance for doubtful accounts on January 1, 2020. 2. Compute the doubtful accounts expense for the current year, 3. Determine the net realizable value of accounts receivable on December 31, 2020.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Winstead & Company has accounts receivable of $288,000 and a negative balance of $2,400 in the Allowance for Doubtful Accounts.Two-thirds of the accounts receivable are current and one-third is past due. The firm estimates that two percent of the current accounts and five percent of the past due accounts will prove to be uncollectible.The adjustment to provide for the bad debt expense under the aging method should be for what amount?
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