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Jestin Company: What was the balance in the Accounts Receivable account at the end of Year 5?

The sales, all on account, of the Jestin Company in Year 5, its first year of operations, were $700,000. Collections totaled $500,000. On December 31, Year 5, Jestin Company estimated that 2 percent of all sales would probably be uncollectible. On that date, Bobbin Company wrote off specific accounts in the amount of $6,000.

Jestin Company's unadjusted trial balance (after all nonadjusting entries were made and after all write-offs of specific accounts receivable identified during Year 6 as being uncollectible) on December 31, Year 6, includes the following accounts and balances:

Accounts Receivable (Dr.) $300,000
Allowance for Uncollectible Accounts (Dr.) 10,000
Sales (Cr.) 800,000

On December 31, Year 6, Jestin Company carried out an aging of its accounts receivable balances and estimated that the Year 6 ending balance of accounts receivable contained $9,000 of probable uncollectibles. It made adjusting entries appropriate for this estimate. Some of the $800,000 sales during Year 6 were for cash and some were on account; the omission of the amount is purposeful.

Required:
a.) What was the balance in the Accounts Receivable account at the end of Year 5? Give the amount and whether debit or credit.

b.) What was the balance in the Allowance for Uncollectible Accounts account at the end of Year 5? Give the amount and whether debit or credit.

c.) What was bad debt expense [or, the amount of the Revenue Contra for Uncollectibles for Year 6?

d.) What was the amount of specific accounts receivable written off as being uncollectible during the year Year 6?

e.) What were total cash collections in Year 6 from customers (for cash sales and collections from customers who had purchased on account in either Year 5 or Year 6)?

f.) What was the net balance of accounts receivable included in the balance sheet asset total for December 31, Year 6?

g.) Consider the account, Allowance for Uncollectible Accounts. Is that account best fully labeled as an Asset account, an Asset Contra account, an Asset Adjunct account, or an Asset Control account?

h.) Assume the following facts, independent of the assumptions in the preceding questions. Jestin can estimate with reasonable precision each of the following: uncollectible accounts on sales, estimated future warranty costs for product warranties offered along with its products, and estimated returns by customers who exercise the option to return goods for a full refund. For which of the following, if any, may Jestin use an allowance method in measuring periodic income: uncollectible accounts, product warranties, and returns? Indicate none, all, or the specific methods.

Solution Preview

Required:
a.) What was the balance in the Accounts Receivable account at the end of Year 5? Give the amount and whether debit or credit.
During the year 5 the sales were 700,000, Collections were 500,000 so the accounts receivables were 200,000 of this the allowance for bad debt was 14,000, which is deducted from 200,000, and we get 186,000. How did we get 14,000? We find out 2% of the sales that is 2% of 700,000.

b.) What was the balance in the Allowance for Uncollectible Accounts account at the end of Year 5? Give the amount and whether debit or credit.
Now the starting figure in the Allowance for Uncollectible Account is 14,000, however, Justin has decided that the bad debts are 6,000, so the Allowance for Uncollectible Account has 14.000 -6,000 = 8,000 which is a credit balance.

c.) What was bad debt expense [or, the amount of the Revenue Contra for Uncollectibles] for Year 6?
The bad debt expense for the year 6 has been estimated by Justin to be $10,000.
d.) What was the amount of specific accounts receivable written off as being uncollectible during the year Year 6? ...

Solution Summary

The balance of an account receivable account at the end of year 5 is determined.

$2.19