Question

At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:

a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.

b. Collections on account, \)135,000.

c. Write-offs of uncollectible receivables, $2,300.

Requirements

1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.

2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 3% of credit sales. Post the adjustment to the appropriate T-accounts.

4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet.

Short answer

1. Journal entries are recorded in Step 2.
2. T accounts are recorded in Step 3.
3. Journal entry and T account in Step 4.
4. The balance of net realizable value is $49,780.

Step-by-step solution

Definition of accounts receivable

The accounts receivable means the amount that is being received by the company. This amount is received from the debtors of the company.

Step 2: (1) Journalizing the transactions

Date	Particulars	Debit	Credit
	Accounts Receivables	$164,000
	Sales Revenue		$164,000
	(Sold goods on account)
	Cash	$21,000
	Sales Revenue		$21,000
	(Being goods sold in cash)
	Cash	$135,000
	Accounts Receivables		$135,000
	(Collected cash on account.)
	Allowance for Bad Debts	$2,300
	Accounts Receivables		$2,300
	(uncollectible receivables written off.)

(2) Posting of transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

Accounts Receivable
Balance	$28,000	$135,000	Sales
Collections	$164,000	$ 2,300
Bal.	$54,700

Allowance for Bad Debts
Write-off	$2,300	Balance	$3,000
		Balance	$700

(3) Journal entry and T accounts.

$\begin{array}{c}\mathbf{Bad}\mathbf{-}\mathbf{Debts}\mathbf{=}\mathbf{Accounts}\mathbf{Receivable}\mathbf{\times }\mathbf{Percentage}\mathbf{of}\mathbf{Bad}\mathbf{Debts}\mathbf{-}\mathbf{Unadjusted}\mathbf{Balance}\\ \mathbf{=}\mathbf{\$}\mathbf{164}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{3}\mathbf{\%}-\mathbf{\$}\mathbf{700}\\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{920}-\mathbf{\$}\mathbf{700}\\ =\$4,220\end{array}$

Date	Particulars	Debit	Credit
	Bad Debts Expense	$4,220
	Allowance for Bad Debts		$4,220
	(Being entry to record bad debts expense)

Allowance for Bad Debts
Write off	$2,300	Bal.	$3,000
		Unadjusted Balance	700
		Adjustment	$4,220
		Balance	$4,920

(4) Reporting of net accounts receivable on December 31, 2018

Particular’s	As of December 2018
Accounts Receivable	$54,700
Less: Allowance for Bad Debts	($4,920)
Net Realizable Value	$49,780