Question

Ingrid Inc. has strict credit policies and only extends credit to customers with outstanding credit history. The company examined its accounts and determined that at January 1, 2019, it had balances in Accounts Receivable and Allowance for Doubtful Accounts of $478,000 and $7,900 (credit), respectively. During 2019, Ingrid extended credit for $3,075,000 of sales, collected $2,715,000 of accounts receivable, and had customer defaults of $4,280. Ingrid performed an aging analysis on its receivables at year end and determined that $6,800 of its receivables will be uncollectible.

Required:
a. Calculate Ingrid's balance in accounts receivable on December 31, 2018, prior to the adjustment.
b. Calculate Ingrid's balance in allowance for doubtful accounts on December 31, 2018, prior to the adjustment.
c. Prepare the necessary adjusting entry for 2018.

Answer 1

The balance in accounts receivable for Ingrid Inc. at the end of 2018 is $838,000, and the allowance for doubtful accounts is $5,380. An adjusting entry was made for $6,800 to account for uncollectible receivables.

Step-by-step explanation:

The question from the student involves calculating balances and making adjusting entries for accounts receivable and allowance for doubtful accounts for Ingrid Inc.

To calculate the balance in accounts receivable on December 31, 2018, we need to consider the starting balance, add credit sales made during the year, and subtract collections from customers. The calculation would be $478,000 + $3,075,000 - $2,715,000.

The balance in the allowance for doubtful accounts before adjustments can be determined by taking the starting balance and adjusting for defaults during the year. The calculation is $7,900 (credit balance) + $4,280 (defaults).

For the adjusting entry, we need to establish the necessary allowance for doubtful accounts based on the aging analysis. We would debit Bad Debt Expense and credit Allowance for Doubtful Accounts for the amount determined necessary, which is $6,800.

Therefore, the adjusted balances would be:

Accounts Receivable: $478,000 + $3,075,000 - $2,715,000 = $838,000

Allowance for Doubtful Accounts: $7,900 + $4,280 - $6,800 = $5,380

Adjusting Entry: Debit Bad Debt Expense $6,800; Credit Allowance for Doubtful Accounts $6,800

Answer 2

Ingrid Inc.

a. Ingrid's balance in accounts receivable on December 31, 2018, prior to the adjustment is:

= $833,720.

b. Ingrid's balance in allowance for doubtful accounts on December 31, 2018, prior to the adjustment is:

= $6,800.

c. Adjusting Entry:

Debit Bad Debts Expense $3,180

Credit Allowance for Doubtful Accounts $3,180

To record the bad debts expense for the year and bring the balance of the Allowance for Doubtful Accounts to a credit balance of $6,800

Step-by-step explanation:

a) Data and Calculations:

January 1, 2019 balances:

Accounts Receivable $478,000

Allowance for Doubtful Accounts $7,900 (credit)

Accounts Receivable $3,075,000 Sales Revenue $3,075,000

Cash $2,715,000 Accounts Receivable $2,715,000

Allowance for Doubtful Accounts $4,280 Accounts Receivable $4,280

Ending balance:

Allowance for Doubtful Accounts $6,800 (Credit)

T-Accounts

Account Titles Debit Credit

Beginning balance $478,000

Sales Revenue $3,075,000

Cash $2,715,000

Allowance for Doubtful Accounts $4,280

Ending balance $833,720

Allowance for Doubtful Accounts

Account Titles Debit Credit

Beginning balance $7,900

Accounts Receivable $4,280

Bad Debts Expense 3,180

Ending balance $6,800