The following information is extracted from Shelton Corporation’s accounting records at the beginning of 2016:
Accounts Receivable $72,000
Allowance for Doubtful Accounts 1,200 (credit)
During 2016, sales on credit amounted to $573,000, $554,000 was collected on outstanding receivables and $2,900 of receivables were written off as uncollectible. On December 31, 2016, Shelton estimates its bad debts to be 4% of the outstanding gross accounts receivable balance.
Required: 1. Prepare the journal entry necessary to record Shelton’s estimate of bad debt expense for 2016.
2. Prepare the Accounts Receivable section of Shelton’s December 31, 2016, balance sheet.
3. Compute Shelton’s receivables turnover. (Round to one decimal place.)
Answer:
:a.
Prepare the journal entry necessary to record Shelton’s estimate of bad debt expense for 2016.
| No | Description | Debit $ | Credit $ |
| a | Bad bebt expanses | 5224 | |
| Allowance for Doubtful Accounts |
5224 |
Working notes for the above answer is as under
Beg. bal. $72,000
+ credit sales $573,000
– Collections $ 554,000
– Written off $2900
= Ending bal. $52,000 of which 4% is estimated to be bad, so $3524 is estimated to be bad at year end
Allowance for doubtful accounts
Beg. bal. 1200 Credit
– Written off $2900
= Unadjusted ending bal. $1700
You want your ADA to have a credit balance of $3524 but the ADA has debit balance of $ 1700, so you need only to “top-up” with $ 3524+1700 =
- Prepare the Accounts Receivable section of Shelton’s December 31, 2016, balance sheet.
| Shelton Corporation | |
| Receivables portion of Balance sheet | |
| 31-Dec-13 | |
| Accounts receivable | 91000 |
| Allowance for doubtful accounts | 3524 |
| Net accounts receivable | 87476 |
- Compute Shelton’s receivables turnover. (Round to one decimal place.)
Shelton’s receivables turnover
= Net credit Sales /Average Accounts Recivable
=573000 /(72000+910000)/2
=7.03
