Chapter 13, Problem 13.18E

Impairment of accounts receivable

• LO13–5, LO13–6

The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2018, the allowance account had a credit balance of $75,000. Credit sales for 2018 totaled $2,400,000 and the year-end accounts receivable balance was $490,000. During this year, $73,000 in receivables were determined to be uncollectible. Manda Panda anticipates that 3% of all credit sales will ultimately become uncollectible. The fiscal year ends on December 31.

Required:

1. Does this situation describe a loss contingency? Explain.

2. What is the bad debt expense that Manda Panda should report in its 2018 income statement?

3. Prepare the appropriate journal entry to record the contingency.

4. What is the net accounts receivable value Manda Panda should report in its 2018 balance sheet?