Q44PS - Horngren'S Financial And Managerial Accounting

Question

This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and

continued through Chapter 7.

Crystal Clear Cleaning uses the allowance method to estimate bad debts. Consider the following April 2019 transactions for Crystal Clear Cleaning:

Apr. 1 Performed cleaning service for Debbie’s D-list for \(13,000 on account with

terms n/20.

10 Borrowed money from First Regional Bank, \)30,000, making a 180-day, 12% note.

12 After discussions with customer More Shine, Crystal Clear has determined that

\(230 of the receivable owed will not be collected. Wrote off this portion of the

receivable.

15 Sold goods to Warner for \)9,000 on account with terms n/30. Cost of Goods Sold

was \(4,500.

28 Sold goods to Lelaine, Inc. for cash of \)2,800 (cost \(840).

28 Collected from More Shine, \)230 of receivable previously written off.

29 Paid cash for utilities of \(150.

30 Created an aging schedule for Crystal Clear Cleaning for accounts receivable.

Crystal Clear determined that \)7,000 of receivables outstanding for 1–30 days

were 3% uncollectible, \(10,000 of receivables outstanding for 31–60 days were

20% uncollectible, and \)5,870 of receivables outstanding for more than 60 days

were 30% uncollectible. Crystal Clear Cleaning determined the total amount of

estimated uncollectible receivables and adjusted the Allowance for Bad Debts.

Assume the account had an unadjusted credit balance of $260. (Round to

nearest whole dollar.)

Requirements

1. Prepare all required journal entries for Crystal Clear. Omit explanations.

2. Show how net accounts receivable would be reported on the balance sheet as of

April 30, 2019.

Step-by-Step Solution

Answer

The net accounts receivable balance is $18,229.

Step 1: Definition of Bad Debt Expenses

A business entity’s expenses for reporting the accounts receivables that are uncollectible are known as bad debt expenses. Such expenses are deducted from the receivables. 

Step 2: Journal entries

Date	Particulars	Debit	Credit
April 1	Accounts receivable	$13,000
	Services revenue		$13,000
April 10	Cash	$30,000
	12% Notes Payable		$30,000
April 12	Allowance for Bad Debts	$230
	Accounts Receivable		$230
April 15	Accounts receivable	$9,000
	Sales		$9,000
April 28	Cash	$2,800
	Sales		$2,800
April 28	Accounts receivable	$230
	Allowance for bad debts		$230
	Cash	$230
	Accounts receivable		$230
April 29	Utility Expense	$150
	Cash		$150
April 30	Allowance for bad debts  $(\mathrm{\$}3,971-\mathrm{\$}260)$	$3,771
	Accounts receivables		$3,771

Working note: 

Particular	Age	Estimated uncollectible percentage	Uncollectible amount $
$7,000	1-30 days	3%	$210
$10,000	31-60 days	20%	$2,000
$5,870	More than 60 days	30%	$1,761
			$3,971

Step 3: Balance Sheet

Crystal Clear Cleaning
Balance Sheet
As of April 30, 2019
Accounts Receivable	$22,000
Less- Allowance for bad debts	($3,771)
Net Accounts receivable		$18,229