Chapter 5, Problem 5.3AP

1.

To determine

To record: The transactions of Company U for each date.

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 reported in the balance sheet.

Date	Account Title and Explanation		Debit ($)	Credit ($)
June 12 ,2015	Accounts receivable		41,000
		Service revenue		41,000
	(To record the service  provided on account)
September 17, 2015	Cash		25,000
		Accounts receivable		25,000
	(To record the receipt of cash on account)
December 31, 2015	Bad debt expense (2)		7,200
		Allowance for uncollectible accounts		7,200
	(To record the estimation of future bad debts)
March 4, 2016	Accounts receivable		56,000
		Service Revenue		56,000
	(To record the services provided on account )
May 20, 2016	Cash		10,000
		Accounts receivable		10,000
	(To record receipt of cash on account)
July 2, 2016	Allowance for uncollectible accounts		6,000
		Accounts receivable		6,000
	(To record the writing-off of actual bad debts)
October 19, 2016	Cash		45,000
		Accounts receivable		45,000
	(To record the  receipt of cash from customer on account)
December 31, 2016	Bad debt expense (5)		3,750
		Allowance for uncollectible accounts		3,750
	(To record the estimation of future bad debts)

Table (1)

Working notes:

Calculate Estimate future bad debts On December 31, 2015:

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on June 12, 2015}-\\ \text{Received cash from customers on account on September 17, 2016}\end{array}\right]\\ =\$41,000-\$25,000\\ =\$16,000\end{array}$ (1)

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{estimated percentage of uncollectible accounts}\end{array}\right]\\ =\$16000(1)\times 45\%\\ =\$7,200\end{array}$ (2)

Calculate Estimate future bad debts On December 31, 2016:

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on March 4, 2016}-\\ \text{Received cash from customers on account on October 19, 2016}\end{array}\right]\\ =\$56,000-\$45,000\\ =\$11,000\end{array}$ (3)

$\begin{array}{c}\left[\begin{array}{l}\text{Balance in allowance for }\\ \text{uncollectible accounts after write off}\end{array}\right]\text{=}\left[\begin{array}{l}\text{Allowance for uncollectible accounts on }\\ \text{December 31,2015}-\\ \text{Write-off actual bad debts on July 2, 2016}\end{array}\right]\\ =\$7,200-\$6,000\\ =\$1,200\end{array}$ (4)

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{Estimated Percentage of uncollectible accounts}-\\ \text{Balance in allowance for }\\ \text{uncollectible accounts after write off}\end{array}\right]\\ =\$11000(3)\times 45\%-\$1,200(4)\\ =\$3,750\end{array}$ (5)

 2.

To determine

To post: Transactions to the following accounts: Cash, Accounts receivable, and Allowance for uncollectible accounts.

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.

For 2015:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
September 17, 2015	Accounts receivable	$25,000
December 31, 2015	Balance (Balancing figure)	$25000

Table (2)

For 2016:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
January 1, 2016	Beginning balance	$25,000
May 20, 2016	Accounts receivable	$10,000
October 19, 2016	Accounts receivable	$45,000
December 31, 2016	Balance (balancing figure)	$80,000

Table (3)

For 2015:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
June 12, 2015	Service revenue	$41,000	September 17, 2015	Cash	$25000
December 31, 2015	Balance (Balancing figure)	$16,000

Table (4)

For 2016:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
March 4, 2016	Service revenue	$56,000	May 20, 2016	Cash	$10,000
			July 2, 2016	Allowance for uncollectible accounts	$6,000
			October 19, 2016	Cash	45,000
December 31, 2016	Balance (balancing figure)	$11,000

Table (5)

For 2015:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
			December 31, 2015	Bad debt expense	$7,200

Table (6)

For 2016:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
July 2, 2016	Accounts receivable	$6,000	December 31, 2016	Bad debt expense	$3,750
			December 31, 2016	Balance (balancing figure)	$4,950

Table (7)

 3.

To determine

To Calculate: The net realizable value of accounts receivable at the end of 2015 and 2016.

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.

Calculate the net realizable value of accounts receivable at the end of 2015 and 2016:

Years	2015	2016
Total accounts receivable	$16,000	$11,000
Less: Allowance for uncollectible accounts	($7,200)	($4,950)
Net realizable value	$8,800	$6,050

Table (8)

Conclusion

Hence, the net realizable value of Company U for the year 2015 is $8,800 and for the year 2016 is $6,050.