Manilow Corporation operates in an industry that has a high rate of bad debt. Before any year-end adjustments, the balance in Manilow’s Accounts Receivable was $555,000 and Credit Loss Allowance has a credit balance of $40,000. The year-end balance reported in the statement of financial position for Credit Loss Allowance will be based on the aging schedule shown below. Day Account Outstanding Amount Probability of Collection Less than 16 days 300,000 .98 16-30 days 100,000 .90 31-45 days 80,000 .85 46-60 days 40,000 .80 61-75 days 20,000 .55 Over 75 days 15,000 .00 Instruction: 1.1 Compute expected credit loss for the year ending December 31 and the net realizable value of Manilow’s accounts receivable as of December 31 1.2 Prepare the journal entry to record the expected credit loss for the year.
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.
Manilow Corporation operates in an industry that has a high
rate of
Manilow’s
Allowance has a credit balance of $40,000. The year-end balance
reported in the
Allowance will be based on the aging schedule shown below.
Day Account
Outstanding
Amount Probability of
Collection
Less than 16 days 300,000 .98
16-30 days 100,000 .90
31-45 days 80,000 .85
46-60 days 40,000 .80
61-75 days 20,000 .55
Over 75 days 15,000 .00
Instruction:
1.1 Compute expected credit loss for the year ending
December 31 and the net realizable value of Manilow’s
accounts receivable as of December 31
1.2 Prepare the
for the year.
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