At December 31, 2016, the Elias Paper Company Ltd. balance sheet had a balance of $1,268,800 in accounts receivable. In addition, a contra account showed an allowance for doubtful accounts balance of $32,400. Credit sales for 2017 were $8,540,000, with collections of the receivables amounting to $8,262,560, including $15,600 that Elias had written off as uncollectible in December 2016 from Huron Supplies Ltd. During 2017, Elias wrote off $33,660 as uncollectible.
On November 1, 2017, a customer with a $720,000 balance in accounts receivable sent $200,000 in cash (included in the cash collections) and a note receivable for the balance. The account was considered to be collectible.
At December 31, 2017, Elias’ year-end, the balance in accounts receivable included $200,580 of past due accounts, which management estimated would result in a 10 per cent loss, based on past experience. In addition, it was management’s policy to set up an allowance on remaining accounts receivable equal to 2 per cent of the balance outstanding.
Required:
- Prepare general journal entries for all 2017 transactions relating to notes and accounts receivable.
- Prepare all adjusting entries at December 31, 2017.
- Show the amount that should appear in the 2017 income statement as bad debt expense.
- What is the total for the allowance for doubtful accounts at December 31, 2017?
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