FAR Question Help – AR Calculation

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  • #201369
    sagittarian
    Participant

    In its December 31, Year 1, balance sheet, Fleet Co. reported accounts receivable of $100,000 before allowance for uncollectible accounts of $10,000. Credit sales during Year 2 were $611,000, and collections from customers, excluding recoveries, totaled $591,000. During Year 2, accounts receivable of $45,000 were written off and $17,000 were recovered. Fleet estimated that $15,000 of the accounts receivable at December 31, Year 2, were uncollectible. In its December 31, Year 2, balance sheet, what amount should Fleet report as accounts receivable before allowance for uncollectible accounts?

    a.

    $58,000

    b.

    $82,000

    c.

    $75,000

    d.

    $67,000

    Could someone explain the answer to this question?

    Thanks!

    #772440
    marqzho
    Participant

    The question asked for AR ending balance

    AR beginning balance : 100

    credit sale:
    Dr. AR 611<-
    Cr. Sale 611

    payment from customer:
    Dr. Cash 591
    Cr. AR 591<-

    AR written off:
    Dr. Allowance for doubtful debt 45
    Cr. AR 45<-

    So you have +100+611-591-45=75

    recover bad debt is irrelevant
    Dr. cash 17
    Cr. Allowance 17

    Bad Debt estimate is irrelevant
    Dr. bad debt expense 15
    cr. allowance 15

    beg balance of allowance is irrelevant

    #772441
    marqzho
    Participant

    #772442
    sagittarian
    Participant

    Thank you, Marqzho!

    Could you please explain why the recovered bad debts (17K) is irrelevant?

    #772443
    marqzho
    Participant

    Bad debt recovery J/E

    Dr. Cash 17
    Cr. Allowance 17

    It won't affect accounts receivable before allowance for uncollectible accounts

    #3305960
    michaela.xu
    Participant

    Hey marqzho, bumping up this really aged post, but i don't think your journal entry for bad debt recovery is correct.

    The JE really should be two steps:
    1) reverse the write-off JE
    Debit A/R
    Credit Allowance for doubtful accounts
    2) If there is cash payments:
    Debit Cash
    Credit A/R
    Since in the question, there is no cash payment, Step 2) is not relevant. However, step 1) definitely is and touches on Allowance and A/R account.

    Therefore, I think the $17K recovery is relevant for A/R balance at year end.

    #3305963
    michaela.xu
    Participant

    Hey marqzho, bumping up this really aged post, but i don't think your journal entry for bad debt recovery is correct.

    The JE really should be two steps:
    1) reverse the write-off JE
    Debit A/R
    Credit Allowance for doubtful accounts
    2) If there is cash payments:
    Debit Cash
    Credit A/R
    Since in the question, there is no cash payment, Step 2) is not relevant. However, step 1) definitely is and touches on Allowance and A/R account.

    Therefore, I think the $17K recovery is relevant for A/R balance at year end.

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