Question

Accounting for uncollectible accounts using the allowance method (aging-of-receivables) and reporting receivables on the balance sheet.

At December 31, 2018, the Accounts Receivable balance of GPS Technology is \(200,000. The Allowance for Bad Debts account has a \)24,110 debit balance. GPS Technology prepares the following aging schedule for its accounts receivable:

Age of Accounts
	1–30 Days	31–60 Days	61–90 Days	Over 90 Days
Accounts Receivable	\( 65,000	\) 50,000	\(40,000	\)45,000
Estimated percent uncollectible	0.4%	3.0%	5.0%	48.0%

Requirement:

1. Journalize the year-end adjusting entry for bad debts on the basis of the aging schedule. Show the T-account for the Allowance for Bad Debts at December 31, 2018.

2. Show how GPS Technology will report its net accounts receivable on its December 31, 2018, balance sheet

Short answer

1. Journal entry and T account is recorded in Step 2.
2. The net realizable value is $174,640.

Step-by-step solution

Definition of bad-debt expense

The bad debt expense refers to the outstanding amount from the customers end, which remains uncollectible.

Journalizing of bad-debt expense and preparation of T-Account

$\begin{array}{c}\mathbf{Bad}\mathbf{-}\mathbf{Debt}\mathbf{Expense}\mathbf{=}\mathbf{Target}\mathbf{Balance}\mathbf{+}\mathbf{Unadjusted}\mathbf{Balance}\\ \mathbf{=}\left(\begin{array}{l}(\$65,000\times 0.4\%)+(\$50,000\times 3\%)\\ +(\$40,000\times 5\%)+(\$45,000\times 48\%)\end{array}\right)\mathbf{+}\mathbf{\$}\mathbf{24}\mathbf{,}\mathbf{110}\\ =(\$260+\$1,500+\$2,000+\$21,600)+\$24,110\\ =\$25,360+\$24,110\\ =\$49,470\end{array}$

Date	Particulars	Debit	Credit
	Bad Debts	$49,470
	Allowance for Bad Debts		$49,470
	(Being entry to record bad debts expense)

Allowance for Bad Debts
Balance	$24,110	$49,470	Adjustments
		$25,360	Ending Balance

Calculation of net realizable value

GPS Technology Partial Balance Sheet As of December, 2018
Accounts Receivable	$200,000
Less: Allowance for Bad Debts	($25,360)
Net Realizable Value	$174,640