Sam and Robert are identical twins. They opened identical
Question and Solution
Sam and Robert are identical twins. They opened identical businesses and experienced identical transactions. However, they decided to estimate uncollectible accounts in different ways. Sam elected to use the percentage of sales method, and Robert elected to use the percentage of receivables method. Listed below are the beginning balances of Cash, Accounts Receivable, and Allowance for Bad Debts [items (a)–(c)], and summary transactions that occurred during the year [items (d)–(g)] for both businesses. Remember, both businesses experienced the same events: credit sales, collections of receivables, and write-offs. The only difference between the businesses is the method of estimating uncollectible accounts.
REQUIRED 1. Enter items (a) through (c) in two sets of general ledger accounts: one for Sam and one for Robert. For Sam: 2. Prepare entries in a general journal (page 4) for summary transactions (d) through (g) for Sam. 3. Post the entries to a general ledger for Sam, using the following accounts and numbers. Cash ............ 101 Accounts Receivable ..... 122 Allowance for Bad Debts ... 122.1 Sales ............ 401 Bad Debt Expense ...... 532 4. Sam estimates that 1% of all sales on account will be uncollectible. Calculate the estimated bad debt expense and make the appropriate adjusting entry in a general journal. Post the entry to the general ledger accounts on December 31, 20--. 5. Compute the net realizable value of Sam’s accounts receivable on December 31, 20--. For Robert: 6. Prepare entries in a general journal (page 4) for summary transactions (d) through (g) for Robert. 7. Post the entries to a general ledger for Robert, using the same accounts and numbers as were used for Sam. 8. Robert bases the estimate of uncollectible accounts on an aging schedule of accounts receivable. Using the following information, compute the estimated uncollectible amounts and make the appropriate adjusting entry in a general journal. Post the entry to the general ledger accounts on December 31, 20--.
All sales are billed n/30. The following aging chart is used to estimate the uncollectibles using the percentage of receivables method: Age Interval Estimated Percent Uncollectible Not yet due 2% 1–30 days 5 31–60 days 10 61–90 days 25 91–120 days 50 Over 120 days 80 9. Compute the net realizable value of Robert’s accounts receivable on December 31,20--.