Chapter 5, Problem 5.1APCP

1.

To determine

To record: The transactions for Adventure T occurring during the first six months of 2016.

Explanation of Solution

Allowance method for uncollectible accounts:

It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated, and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for bad debt account.

Date	Account Title and Explanation		Debit ($)	Credit ($)
January 24,2016	Equipment		5,000
		Cash		5,000
	(To record the equipment purchased for cash)
February 25, 2016	Accounts receivable		3,000
		Service Revenue		3,000
	(To record providing services on account)
February 28, 2016	Cash		2,850
	Sales discounts		150
		Accounts Receivable		3,000
	(To record receipt of cash with discount )
March 19, 2016	Accounts receivable		4,000
		Service Revenue		4,000
	(To record providing services on account)
March 27, 2016	Cash		3,800
	Sales discounts		200
		Accounts Receivable		4,000
	(To record receipt of cash with discount )
April 7, 2016	Cash		7,500
		Deferred revenue		7,500
	(To record cash received in advance)
April 14, 2016	Deferred revenue		7,500
		Service Revenue		7,500
	(To record providing services on account)
May 9, 2016	Accounts Receivable		6,000
		Service Revenue		6,000
	(To record providing services on account)
June 1-30, 2016	Accounts Receivable		24,000
		Service Revenue		24,000
	(To record providing services on account)
June 30, 2016	Notes receivable		6,000
		Accounts Receivable		6,000
	(To record acceptance of note receivable)

Table (1)

2 (a):

To determine

To record: The adjustment for uncollectible accounts.

Explanation of Solution

Bad debt expense:

Bad debt expense is an expense account. The amounts of loss incurred from extending credit to the customers are recorded as bad debt expense. Estimated future uncollectible accounts receivable are known as bad debt expense.

Journal entry for uncollectible accounts:

Date	Account Title and Explanation		Debit($)	Credit($)
June 30, 2016	Bad debts expenses (1)		2,400
		Allowance for uncollectible accounts		2,400
	(To record the estimation of future bad debts)

Table (2)

Description:

• Bad debt expense is a component of stockholders’ equity and decreased it. So, debit bad debt expense for $2,400,
• Allowance for uncollectible accounts is a contra asset account and decreased it. So, credit allowance for uncollectible accounts for $2,400.

Working notes:

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{estimated Percentage of uncollectible accounts}\end{array}\right]\\ =\$24,000\times 10\%\\ =\$2,400\end{array}$ (1)

2 (b):

To determine

To Prepare: A partial balance sheet showing the net accounts receivable section.

Explanation of Solution

Accounts receivable:

Accounts receivable is an asset of the firm, which refers to the amount which the company would receive in near future for the goods or services provided; hence it is shown in the balance sheet.

Partial balance sheet of Incorporation GA:

Incorporation GA
Partial Balance Sheet
As at June 30, 2016
Assets	Amount ($)	Amount ($)
Current assets:
Accounts receivable	24,000
Less: Allowance for uncollectible accounts	(2,400)
Net accounts receivable		21,600

Table (3)