Chapter 5, Problem 5.3BP

Record transactions related to accounts receivable (LO5–3, 5–5)

The following events occur for Morris Engineering during 2018 and 2019, its first two years of operations.

February 2, 2018    Provide services to customers on account for $38,000.

July 23, 2018    Receive $27,000 from customers on account.

December 31, 2018    Estimate that 25% of uncollected accounts will not be received.

April 12, 2019    Provide services to customers on account for $51,000.

June 28, 2019    Receive $6,000 from customers for services provided in 2018.

September 13, 2019    Write off the remaining amounts owed from services provided in 2018.

     October 5, 2019    Receive $45,000 from customers for services provided in 2019.

     December 31, 2019    Estimate that 25% of uncollected accounts will not be received.

Required:

1.    Record transactions for each date.

  2.    Post transactions to the following accounts: Cash, Accounts Receivable, and Allowance for Uncollectible Accounts.

3.    Calculate the net realizable value of accounts receivable at the end of 2018 and 2019.

To determine

To record: The transactions of engineering M for each date.

Answer to Problem 5.3BP

Date	Account Title and Explanation		Debit ($)	Credit ($)
February 2,2018	Accounts receivable		38,000
		Service revenue		38,000
	( To record the service  provided on account)
July 23,2018	Cash		27,000
		Accounts receivable		27,000
	( To record the receipt of cash on account)
December 31, 2018	Bad debt expense (2)		2,750
		Allowance for uncollectible accounts		2,750
	( To record the estimation of future bad debts)
April 12, 2019	Accounts receivable		51,000
		Service Revenue		51,000
	( To record the services provided on account)
June 28, 2019	Cash		6,000
		Accounts receivable		6,000
	( To record receipt of cash on account)
September 13, 2019	Allowance for uncollectible accounts		5,000
		Accounts receivable		5,000
	( To record the writing-off of actual bad debts)
October 5, 2019	Cash		45,000
		Accounts receivable		45,000
	( To record the  receipt of cash from customer on account)
December 31, 2019	Bad debt expense (5)		3,750
		Allowance for uncollectible accounts		3,750
	( To record the estimation of future bad debts)

Table (1)

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.

Working notes:

Calculate Estimate future bad debts On December 31, 2018:

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on February 2, 2018}-\\ \text{Received cash from customers on account on July 23, 2018}\end{array}\right]\\ =\$38,000-\$27,000\\ =\$11,000\end{array}$ (1)

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{estimate percentage of uncollectible account}\end{array}\right]\\ =\$11000(1)\times 25\%\\ =\$2,750\end{array}$ (2)

Calculate Estimate future bad debts On December 31, 2019:

$\begin{array}{c}\text{Accounts receivable=}\left[\begin{array}{l}\text{Providing services on account on April 12, 2019}-\\ \text{Received cash from customers on account on June 28, 2019}\end{array}\right]\\ =\$51,000-\$6,000\\ =\$45,000\end{array}$ (3)

$\begin{array}{c}\left[\begin{array}{l}\text{Balance in allowance for }\\ \text{uncollectible accounts after write off}\end{array}\right]\text{=}\left[\begin{array}{l}\text{Allowance for uncollectible accounts on }\\ \text{December 31,2018}-\\ \text{Write-off actual bad debts on September 13, 2019}\end{array}\right]\\ =\$2,750-\$5,000\\ \text{Debit balance}=(\$2,250)\end{array}$ (4)

$\begin{array}{c}\text{Estimate future bad debts=}\left[\begin{array}{l}\text{Accounts receivable}\times \\ \text{Estimated Percentage of uncollectible accounts}+\\ \text{balance in allowance for uncollectible }\\ \text{account after written off}\end{array}\right]\\ =\$6000(3)\times 25\%+\$2,250(4)\\ =\$3,750\end{array}$ (5)

To determine

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

Answer to Problem 5.3BP

For 2018:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
July 23,2018	Accounts receivable	$27,000
December 31, 2018	Balance (Balancing figure)	$27000

Table (2)

For 2019:

Cash account
Date	Particulars	Debit	Date	Particulars	Credit
January 1, 2019	Beginning balance	$27,000
June 28, 2019	Accounts receivable	$6,000
October 5, 2019	Accounts receivable	$45,000
December 31, 2019	Balance (balancing figure)	$78,000

Table (3)

For 2018:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
February 2, 2018	Service revenue	$38,000	July 23,2018	Cash	$27000
December 31, 2018	Balance (Balancing figure)	$11,000

Table (4)

For 2019:

Accounts receivable account
Date	Particulars	Debit	Date	Particulars	Credit
April 12, 2019	Service revenue	$51,000	June 28, 2019	Cash	$6,000
			September 13, 2019	Allowance for uncollectible accounts	$5,000
			October 5, 2019	Cash	45,000
December 31, 2019	Balance (balancing figure)	$6,000

Table (5)

For 2018:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
			December 31, 2018	Bad debt expense	$2,750

Table (6)

For 2019:

Allowance for uncollectible account
Date	Particulars	Debit	Date	Particulars	Credit
September 13, 2019	Accounts receivable	$5,000	December 31, 2019	Bad debt expense	$3,750
			December 31, 2019	Balance (balancing figure)	$1,500

Table (7)

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.

To determine

To Calculate: The net realizable value of accounts receivable at the end of 2018 and 2019.

Answer to Problem 5.3BP

Calculate the net realizable value of accounts receivable at the end of 2018 and 2019:

Years	2018	2019
Total accounts receivable	$11,000	$6,000
Less: Allowance for uncollectible accounts	($2,750)	($1,500)
Net realizable value	$8,250	$4,500

Table (8)

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.

Conclusion

Hence, the net realizable value of Engineering M for the year 2018 is $ 8,250 and for the year 2019 is $ 4,500.