Allowance Method for Accounting for Bad Debts
Response to the following problem:
At the beginning of 2008, Miyazaki Company's accounts... Description Allowance Method for Accounting for Bad Debts At the beginning of 2008, Miyazaki Company's accounts receivable balance was $105,000 and the balance in Allowance for Doubtful Accounts was $1,950. Miyazaki's sales in 2008 were $787,500, 80% of which were on credit. Collections on account during the year were $502,500. The company wrote off $3,000 of uncollectible accounts during the year.
Required
1. Prepare summary journal entries related to the sales, collections, and write-offs of accounts receivable during 2008.
2. Prepare journal entries to recognize bad debts assuming
(a) bad debt expense is 3% of credit sales and
(b) amounts expected to be uncollectible are 6% of the year-end accounts receivable.
3. What is the net realizable value of accounts receivable on December 31, 2008, under each assumption in (2)?
4. What effect does the recognition of bad debt expense have on the net realizable value? What effect does the write-off of accounts have on the net realizable value?