Dec. 31 Allowance for Doubtful 10,000 Notes Receivable—Young 10,000 (b) Consideration would have to be given as to whether the note should be written off. At the very least, an allowance should be created with respect to the Young Company note, based upon the estimated probability of collection. Interest should not be accrued if it is unlikely to be collected. Question 3: On July 31, 2008, the year end, Diamond Drills had account balances as follows: company’s Accounts receivable $ 340,500 Allowance for doubtful accounts (credit balance) 5,200 The credit department has determined that of the total accounts receivable, $5,900 should be written off. Diamond estimates 95% of remaining accounts receivable will be collected. Instructions: (a) Prepare the entry to write off the accounts as determined by the credit department (b) Calculate the net realizable value of accounts receivable. (c) Prepare the entry required to adjust accounts receivable to their net realizable balance. Solution (a) Allowance for Doubtful Accounts 5,900 Accounts Receivable 5,900 (b) Net realizable value = ($340,000 5,900) x 95% = $317,395 – (c) Ending Allowance for Doubtful Accounts required is Accounts receivable ($340,000 5,900) $ 334,100 – Net realizable value 317,395 Correct allowance for Doubtful Accounts 16,705 Credit Unadjusted balance ($5,200 5,900) 700 Debit –
Dec. 31 Allowance for Doubtful 10,000 Notes Receivable—Young 10,000 (b) Consideration would have to be given as to whether the note should be written off. At the very least, an allowance should be created with respect to the Young Company note, based upon the estimated probability of collection. Interest should not be accrued if it is unlikely to be collected. Question 3: On July 31, 2008, the company’s year end, Diamond Drills had account balances as follows: Accounts receivable $ 340,500 Allowance for doubtful accounts (credit balance) 5,200 The credit department has determined that of the total accounts receivable, $5,900 should be written off. Diamond estimates 95% of remaining accounts receivable will be collected. Instructions: (a) Prepare the entry to write off the accounts as determined by the credit department (b) Calculate the net realizable value of accounts receivable. (c) Prepare the entry required to adjust accounts receivable to their net realizable balance. Solution (a) Allowance for Doubtful Accounts 5,900 Accounts Receivable 5,900 (b) Net realizable value = ($340,000 – 5,900) x 95% = $317,395 (c) Ending Allowance for Doubtful Accounts required is Accounts receivable ($340,000 – 5,900) $ 334,100 Net realizable value 317,395 Correct allowance for Doubtful Accounts 16,705 Credit Unadjusted balance ($5,200 – 5,900) 700 Debit
13332-6551-reviewsolns.docx