Wilcox Mills is a manufacturer that makes all sales on 30-day credit terms. Annual sales are approximately
Question:
Wilcox Mills is a manufacturer that makes all sales on 30-day credit terms. Annual sales are approximately $30 million. At the end of year 1, accounts receivable were presented in the company’s balance sheet as follows.
During year 2, $165,000 of specific accounts receivable were written off as uncollectible. Of these accounts written off, receivables totaling $15,000 were subsequently collected. At the end of year 2, an aging of accounts receivable indicated a need for a $90,000 allowance to cover possible failure to collect the accounts currently outstanding. Wilcox Mills makes adjusting entries for uncollectible accounts only at year-end.
Instructions:
a. Prepare the following general journal entries. 1. One entry to summarize all accounts written off against the Allowance for Doubtful Accounts during year 2. 2. Entries to record the $15,000 in accounts receivable that were subsequently collected. 3. The adjusting entry required at December 31, year 2, to increase the Allowance for Doubtful Accounts to $90,000.
b. Notice that the Allowance for Doubtful Accounts was only $80,000 at the end of year 1, but uncollectible accounts during year 2 totaled $150,000 ($165,000 less the $15,000 reinstated). Do these relationships appear reasonable, or was the Allowance for Doubtful Accounts greatly understated at the end of year 1? Explain.
Step by Step Answer:
Financial And Managerial Accounting The Basis For Business Decisions
ISBN: 9781260247930
19th Edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello