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 10% of accounts receivable. 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 $49,230.

Step-by-step solution

Definition of accounts receivable

The accounts receivable indicates the amount that will be received in future from the credit customers.

(1) Journalizing the transactions

Date	Particulars	Debit	Credit
	Accounts Receivables	$164,000
	Sales Revenue		$164,000
	(Being 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
	(Recorded bad debts expense for the period.)

(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	Written off
Bal.	$54,700

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

(3) Journal entry and T accounts

$\begin{array}{c}\mathbf{Bad}\mathbf{-}\mathbf{Debts}\mathbf{=}\mathbf{Accounts}\mathbf{Receivable}\mathbf{\times }\mathbf{Percentage}\mathbf{of}\mathbf{Bad}\mathbf{Debts}-\mathbf{Unadjusted}\mathbf{Balance}\\ \mathbf{=}(\mathbf{\$}\mathbf{54}\mathbf{,}\mathbf{700}\mathbf{\times }\mathbf{10}\mathbf{\%})-\mathbf{\$}\mathbf{700}\\ \mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{470}-\mathbf{\$}\mathbf{700}\\ =\$4,770\end{array}$

Date	Particulars	Debit	Credit
	Bad Debts	$4,770
	Allowance for Bad Debts		$4,770
	(Being entry to record bad debts expense)

Allowance for Bad Debts
Write off	$2,300	$3,000	Bal.
		$700	Unadjusted Balance
		$4,770	Adjustment
		$5,470	Balance

(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	($5,470)
Net Realizable Value	$49,230