Chapter 8: 40-36-PGB (page 479)

Accounting for uncollectible accounts using the allowance method
(aging-of-receivables) and reporting receivables on the balance sheet
At September 30, 2018, the accounts of Spring Mountain Medical Center (SMMC)
include the following:
During the last quarter of 2018, SMMC completed the following selected transactions:
• Sales on account, $475,000. Ignore Cost of Goods Sold.
• Collections on account, $451,800.
• Wrote off accounts receivable as uncollectible: Randall, Co., $1,800; Oliver Welch,
$900; and Rain, Inc., $500
• Recorded bad debts expense based on the aging of accounts receivable, as follows:
Age of Accounts
1–30 Days 31–60
Days
61–90
Days
Over 90
Days
Accounts Receivable $ 97,000 $ 37,000 $ 17,000 $ 14,000
Estimated percent uncollectible 0.3% 3% 30% 35%
Requirements
1. Open T-accounts for Accounts Receivable and Allowance for Bad Debts.
Journalize the transactions (omit explanations) and post to the two accounts.
2. Show how Spring Mountain Medical Center should report net accounts receivable
on its December 31, 2018, balance sheet.

Expert verified

Answer:

(1) Journal entries and T accounts are reported in Step 2.

(2) In balance sheet, net accounts receivable will be reported at $153,399

Step by step solution

Bad debts expenses are calculated as follows:

Age of Accounts	Accounts Receivable	Estimated percent uncollectible	Bad debts
1–30 Days	$97,000	0.3%	$291
31–60 Days	$37,000	3%	$1,110
61–90 Days	$17,000	30%	$5,100
Over 90 Days	$14,000	35%	$4,900
Total			$11,401

Date	Particulars	Debit	Credit
September 30, 2018	Accounts Receivable	$475,000
	Sales Revenue		$475,000
	(Being entry to record sale)

September 30, 2018	Cash	$451,800
	Accounts Receivable		$451,800
	(Being entry to record the cash receipts)

September 30, 2018	Allowance for Bad Debts ($1800+$900+$500)	$3,200
	Accounts Receivable		$3,200
	(Entry to record allowance)

September 30, 2018	Bad Debt Expense	$11,401
	Allowance for Bad Debts		$11,401
	(Entry to record bad debt expense)

Allowance for Bad Debts Account
Details	Debit	Details	Credit
Accounts Receivable	$3,200	$3,400	Balance September 1, 2018
		$11,401	Bad Debts Expense

		$11,601	Balance September 30, 2018

Spring Mountain Medical Center (SMMC)
Balance Sheet
On December 31, 2018
Accounts Receivable	$165,000
Less: Allowance for bad debts	($11,601)
Net Accounts Receivable		$153,399

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2018
Jul. 1	Loaned \(16,000 cash to Bud Shyne on a one-year, 8% note.
Sep. 6	Sold goods to Lawn Pro, receiving a 90-day, 6% note for \)11,000. Ignore Cost of Goods Sold.
30	Made a single entry to accrue interest revenue on both notes.
?	Collected the maturity value of the Lawn Pro note.
2019
Jul. 1	Collected the maturity value of the Shyne note.