2 Meritor Leather Products sells leather clothing at both wholesale and retail. The company has found that there is a higher rate of uncollectible accounts from retail credit sales than from wholesale credit sales. Meritor computes its estimated loss from uncollectible accounts at the end of each year. The amount is based on the rates of loss that the firm has developed from experience for each division. A separate computation is made for each of the two types of sales. The firm uses the percentage of net credit sales method.As of December 31, 2007, Accounts Receivable has a balance of $392,000, and Allowance for Doubtful Accounts has a debit balance of $ The following table provides a breakdown of the credit sales for the year 2007 and the estimated rates of loss.
3 Compute the estimated amount of uncollectible accounts expense for each of the two categories of net credit sales for the year.Wholesale ($2,040,000 x .005) $10,200.00Retail (548,600 x .012) ,583.20Total $16,783.20Click for sound:
4 Prepare an adjusting entry in general journal form to provide for the estimated uncollectible accounts on December 31, Use Uncollectible Accounts Expense.2007Dec 31 Uncollectible Accounts Expense ,783.20Allowance for Doubtful Accounts ,783.20To record estimated losses from uncollectible accountsfor the year, based on 0.5% of net wholesale credit salesand 1.2% of retail net credit sales
5 MERITOR LEATHER PRODUCTS Show how Accounts Receivable and Allowance for Doubtful Accounts should appear on the balance sheet of Meritor Leather Products as of December 31, 2007.MERITOR LEATHER PRODUCTSBalance SheetDecember 31, 2007Accounts Receivable 392,000.00Less Allowance for Doubtful Accounts($16, $326.80) 16, ,543.60
6 On January 20, 2008, the account receivable of Delphi Clothiers, amounting to $830, is determined to be uncollectible and is to be written off. Record this transaction in the general journal.2008Jan Allowance for doubtful accountsAccounts Receivable/Delphi Clothiers 830To write off account determined to be uncollectible
7 Nov 26 Accounts receivable/Delphi Clothiers 830 On November 26, 2008, the attorneys for Meritor turned over a check for $830 that they obtained from Delphi clothiers in settlement of its account, which had been written off on January 20. The money has already been recorded in the cash receipts journal. Give the general journal entry to reverse the original write-off.2008Nov 26 Accounts receivable/Delphi Clothiers 830Allowance for doubtful accountsTo reverse entry dated January 20, writing off thisaccount, which was collected in full today.
8 Analyze: When the financial statements are prepared for the year ended December 31, 2007, what net accounts receivable should be reported?Net Accounts Receivable for the year ended December 31, 2007 should be $375,543.60