Q19E - Horngren'S Financial And Managerial Accounting

Question

At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:

a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.

b. Collections on account, \)135,000.

c. Write-offs of uncollectible receivables, $2,300.

Requirements

1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.

2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 10% of accounts receivable. Post the adjustment to the appropriate T-accounts.

4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet

Step-by-Step Solution

Answer

1. Journal entries are recorded in Step 2. 
2. T accounts are recorded in Step 3. 
3. Journal entry and T account in Step 4.
4. The balance of net realizable value is $49,230.

Step 1: Definition of accounts receivable

The accounts receivable indicates the amount that will be received in future from the credit customers.

Step 2: (1) Journalizing the transactions

Date	Particulars	Debit	Credit
	Accounts Receivables	$164,000
	Sales Revenue		$164,000
	(Being sold goods on account)
	Cash	$21,000
	Sales Revenue		$21,000
	(Being goods sold in cash)
	Cash	$135,000
	Accounts Receivables		$135,000
	(Collected cash on account.)
	Allowance for Bad Debts	$2,300
	Accounts Receivables		$2,300
	(Recorded bad debts expense for the period.)

Step 3: (2) Posting of transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

Accounts Receivable
Balance	$28,000	$135,000	Sales
Collections	$164,000	$ 2,300	Written off
Bal.	$54,700

Allowance for Bad Debts
Write-off	$2,300	Balance	$3,000
		Balance	$700

Step 4: (3) Journal entry and T accounts

$\begin{array}{c}\mathbf{Bad}\mathbf{-}\mathbf{Debts}\mathbf{=}\mathbf{Accounts}\mathbf{Receivable}\mathbf{\times }\mathbf{Percentage}\mathbf{of}\mathbf{Bad}\mathbf{Debts}-\mathbf{Unadjusted}\mathbf{Balance}\\ \mathbf{=}(\mathbf{\$}\mathbf{54}\mathbf{,}\mathbf{700}\mathbf{\times }\mathbf{10}\mathbf{\%})-\mathbf{\$}\mathbf{700}\\ \mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{470}-\mathbf{\$}\mathbf{700}\\ =\$4,770\end{array}$

Date	Particulars	Debit	Credit
	Bad Debts	$4,770
	Allowance for Bad Debts		$4,770
	(Being entry to record bad debts expense)

Allowance for Bad Debts
Write off	$2,300	$3,000	Bal.
		$700	Unadjusted Balance
		$4,770	Adjustment
		$5,470	Balance

Step 5: (4) Reporting of net accounts receivable on December 31, 2018

Particular’s	As of December 2018
Accounts Receivable	$54,700
Less: Allowance for Bad Debts	($5,470)
Net Realizable Value	$49,230