Question: The bookkeeper of Vital Inc has asked you to assist

The bookkeeper of Vital Inc. has asked you to assist him with the preparation of information about the company’s trade receivables for presentation in the statement of financial position at December 31, 2015, the end of the company’s fiscal year. The following details have been extracted from the company’s files:
Sales for 2015 totalled $ 1,300,000; $ 300,000 were in cash and the rest on account. The company collected $ 1,100,000 from credit customers during 2015 and wrote off $ 30,000 of trade receivables as uncollectible.
1. Determine the balance of trade receivables at December 31, 2015.
2. Vital estimates that 6 percent of the ending balance of its trade receivables may not be collected in the future. Prepare the journal entries to record the write- off of trade receivables and the bad debt expense for 2015.
3. Show how the information related to trade receivables is presented on the company’s statement of financial position as at December 31, 2015.
4. After you finished helping the bookkeeper with the journal entries and the statement of financial position presentation, he said, “ These calculations seem to be complicated. Would it not be simpler to treat the $ 30,000 as bad debt expense when the company is certain that the customers are not able to pay the amount owed? That way, you record the exact amount of bad debt when it happens, and you do not have to estimate an amount of doubtful accounts and risk being incorrect.” Prepare a response to the bookkeeper.

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  • CreatedAugust 04, 2015
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