On January 1, 2016 the Accounts Receivable general ledger account balance of Chapel Cycle Works Inc. was $265 and the balance in the Allowance For Doubtful Accounts general ledger account was $7. The firm’s credit sales during the year were $2,105 and cash collections from customers amounted to $2,025. Among these collections was the recovery in full of a $3 receivable from K. Lush, a customer whose account had been written off as uncollectible in the previous year. During the current year it was necessary to write off as uncollectible customers’ accounts totalling $8.
At December 31, the accounts receivable included $40 of past-due accounts. After careful study of all past-due accounts, the management estimated that the probable loss contained therein was 20 per cent and that, in addition, 2 per cent of the current accounts receivable might prove uncollectible.
Required:
- Calculate the balance of the accounts receivable account at December 31.
- Prepare the necessary adjusting entry for the bad debts at December 31.
- What amount should appear in this year’s income statement as bad debt expense?
- Show the balance sheet presentation of accounts receivable at December 31.
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