Question

Accounting for uncollectible accounts using the allowance method (percent-of-receivables) and reporting receivables on the balance sheet

Requirements
1. Journalize Hilltop's transactions that occurred during 2018. The company uses the allowance method.
2. Post Hilltop's transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.
3. Journalize Hilltop's adjustment to record bad debts expense assuming Hilltop estimates bad debts as 10% of accounts receivable. Post the adjustment to the appropriate T-accounts.
4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet.

Answer 1

The question asks for the process of accounting for uncollectible accounts using the allowance method. It includes journalizing transactions, posting to T-accounts, estimating bad debts as a percentage of receivables, and reporting the net accounts receivable on the balance sheet.

Step-by-step explanation:

The question concerns the accounting treatment of uncollectible accounts using the allowance method within the field of business and accounting. This method involves estimating the amount of accounts receivable that may not be collected in the future and establishing an allowance for bad debts to reflect these anticipated losses on the financial statements.

Example T-account for Humongous Bank:

For the example provided regarding Humongous Bank, which is required to hold 5% of its existing $20 million as reserves, the T-account after its first round of loans would display the reserved amount on the left side (debit) and the loanable funds on the right side (credit).

• Reserves: $1,000,000 (5% of $20 million)
• Loans: $19,000,000 (the remaining 95% of $20 million)

To summarize the journal entries and T-account postings mentioned in requirements 1 to 3 without specific values:

1. First, record transactions that affect accounts receivable during the year.
2. Next, create T-accounts for Accounts Receivable and Allowance for Uncollectible Accounts.
3. Then, journalize and post an adjusting entry at year-end to record the bad debts expense estimated at a percentage of the accounts receivable.

Regarding the balance sheet presentation as required in 4, the net accounts receivable would be reported by subtracting the Allowance for Bad Debts from the total Accounts Receivable amount to arrive at the net realizable value.

Answer 2

Journal Entries:

a. To record sales:

Debit Accounts Receivable: $164,000

Credit Sales: $164,000

b. To record cash sales:

Debit Cash: $21,000

Credit Sales: $21,000

c. To record collections on account:

Debit Cash: $135,000

Credit Accounts Receivable: $135,000

d. To record write-offs of uncollectible receivables:

Debit Allowance for Bad Debts: $2,300

Credit Accounts Receivable: $2,300

T-Account Posting:

Accounts Receivable:

Beginning balance (Jan. 1, 2018): $28,000

Sales on account: $164,000

Collections on account: ($135,000)

Write-offs: ($2,300)

= Ending balance (Dec. 31, 2018): $54,700

Allowance for Bad Debts:

Beginning balance (Jan. 1, 2018): $3,000

Bad debts write-offs: $2,300 (from the adjustment)

= Ending balance (Dec. 31, 2018): $5,300

Adjustment for bad debts expense:

Estimated bad debts = 3% * $164,000 (credit sales) = $4,920

Bad debts expense:

Debit Bad Debts Expense: $4,920

Credit Allowance for Bad Debts: $4,920

Net Accounts Receivable on Dec. 31, 2018:

Accounts Receivable: $54,700

Allowance for Bad Debts: ($5,300)

Net Accounts Receivable = $54,700 - $5,300 = $49,400

The Complete Question

Accounting for uncollectible accounts using the allowance method (percent-of-sales) and reporting receivables on the balance sheet Learning Objectives 1,3 2. AR, Dec. 31 $54,700 Requirements 1. Journalize Hilltop's transactions that occurred during 2018. The company uses the allowance method. 2. Post Hilltop's transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts. 3. Journalize Hilltop's adjustment to record bad debts expense assuming Hilltop estimates bad debts as 3% of credit sales. Post the adjustment to the appropriate T- accounts. 4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet. At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of $28,000, and Allowance for Bad Debts had a credit balance of $3,000. During the year, Hilltop Flagpoles recorded the following: a. Sales of $185,000 ($164,000 on account; $21,000 for cash). Ignore Cost of Goods Sold. b. Collections on account, $135,000 c. Write-offs of uncollectible receivables, $2,300.