Chapter 5, Problem 6E

Effect of recovering a receivable previously written off

The accounts receivable balance for Renue Spa at December 31, 2017, was $61,000. Also on that date, the balance in the Allowance for Doubtful Accounts was $3,750. During 2018, $2,100 of accounts receivable were written off as uncollectible. In addition, Renue unexpectedly collected $500 of receivables that had been written off in a previous accounting period. Services provided on account during 2018 were $215,000, and cash collections from receivables were $218,000. Uncollectible accounts expense was estimated to be 2 percent of the sales on account for the period.

Required

a. Organize the information in accounts under an accounting equation.

b. Based on the preceding information, compute (after year-end adjustment):

(1) Balance of Allowance for Doubtful Accounts at December 31, 2018.

(2) Balance of Accounts Receivable at December 31, 2018.

(3) Net realizable value of Accounts Receivable at December 31, 2018.

c. What amount of uncollectible accounts expense will Renue Spa for 2018?

d. Explain how the $500 recovery of receivables affected the accounting equation.