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Horngren'S Financial And Managerial Accounting
Found in: Page 475

Short Answer

At September 30, 2018, the accounts of Green Terrace Medical Center (GTMC)

include the following:

Accounts Receivable $ 145,000

Allowance for Bad Debts (credit balance) 3,500

During the last quarter of 2018, GTMC completed the following selected transactions:

• Sales on account, $450,000. Ignore Cost of Goods Sold.

• Collections on account, $427,100

• Wrote off accounts receivable as uncollectible: Regan, Co., $1,400; Owen Reis, $800;

and Patterson, Inc., $700

• 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 $ 104,000 $ 39,000 $ 14,000 $ 8,000

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 Green Terrace Medical Center should report net accounts receivable on

its December 31, 2018, balance sheet.

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

(2) Under Partial Balance Sheet, net accounts receivable will be reported at $156,518.

See the step by step solution

Step by Step Solution

Step 1: Calculation of bad debts

Bad debts are calculated as follows:

Step 2: Journal Entries

Date

Particulars

Debit

Credit

September 30, 2018

Accounts Receivable

$450,000

Sales Revenue

$450,000

(Being entry to record sale)

September 30, 2018

Cash

$427,100

Accounts Receivable

$427,100

(Being entry to record the cash receipts)

September 30, 2018

Allowance for Bad Debts

$2,900

Accounts Receivable

$2,900

(Being entry to record allowance)

September 30, 2018

Bad Debt Expense

$7,882

Allowance for Bad Debts

$7,882

(Being entry to record bad debt expense)

Accounts Receivable

Balance September 1, 2018

$145,000

$427,100

September 30, 2018

September 30, 2018

$450,000

$2,900

September 30, 2018

Balance September 30, 2018

$165,000

Allowance for Bad Debts Account

September 30, 2018

$2,900

$3,500

Balance September 1, 2018

$7,882

September 30, 2018

$8,482

Balance September 30, 2018

Step 3: Balance Sheet

Green Terrace Medical Centre
Partial Balance Sheet
On December 31, 2018

Accounts Receivable

$165,000

Less: Allowance for bad debts

($8,482)

Net Accounts Receivable

$156,518

Most popular questions for Business-studies Textbooks

Accounting for uncollectible accounts using the allowance method

This problem continues the Canyon Canoe Company situation from Chapter 7.

Canyon Canoe Company has experienced rapid growth in its first few months of operations and has had a significant increase in customers renting canoes and purchasing T-shirts. Many of these customers are asking for credit terms. Amber and Zack Wilson, stockholders and company managers, have decided it is time to review their business transactions and update some of their business practices. Their first step is to make decisions about handling accounts receivable.

So far, year-to-date credit sales have been $15,500. A review of outstanding

receivables resulted in the following aging schedule:

Age of Accounts as of June 30, 2019

Customer name

1-30 days

31-60 days

61-90 days

Over 90 days

Total balance

Canyon

$250

$250

Crazy trees

$200

$150

$350

Early start Daycare

$500

Lakefront Pavilion

$575

$500

$575

Outdoor Center

$300

$300

Rivers Canoe Club

$350

$350

Sport Shirts

$450

$120

$570

Zack’s Marina

$75

$75

$225

Totals

$1,900

$345

$375

$500

$3,120

Requirements

1. The company wants to use the allowance method to estimate bad debts. Determine the estimated bad debts expense under the following methods at June 30, 2019. Assume a zero-beginning balance for Allowance for Bad Debts. Round to the nearest dollar.

a. Percent-of-sales method, assuming 4.5% of credit sales will not be collected.

b. Percent-of-receivables method, assuming 22.5% of receivables will not be

collected.

c. Aging-of-receivables method, assuming 5% of invoices 1–30 days will not be

collected, 20% of invoices 31–60 days, 40% of invoices 61–90 days, and 75% of

invoices over 90 days.

2. Journalize the entry at June 30, 2019, to adjust for bad debts expense using the percent-of-sales method.

3. Journalize the entry at June 30, 2019, to record the write-off of the Early Start Daycare invoice.

4. At June 30, 2019, open T-accounts for Accounts Receivable and Allowance for Bad Debts before Requirements 2 and 3. Post entries from Requirements 2 and 3 to those accounts. Assume a zero beginning balance for Allowance for Bad Debts.

5. Show how Canyon Canoe Company will report net accounts receivable on the balance sheet on June 30, 2019.

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