Accounts Receivable (AR) – Practice Problems Solutions Pg 1 Accounts Receivable (AR) Practice Problems Solutions 1. June 24 Accounts Receivable ....................................................... $40,000.00 Sales Revenue ............................................................ $40,000.00 Cost of Goods Sold .......................................................... $12,000.00 Inventory .................................................................... $12,000.00 June 30 Cash ............................................................................. $19,600.00 Sales Discounts ................................................................ $ 400.00 Accounts Receivable ................................................. $20,000.00 Discount = 40,000 x ½ x .02 July 20 Cash ................................................................................. $12,000.00 Sales Returns and Allowances ......................................... $ 8,000.00 Accounts Receivable ................................................. $20,000.00 Inventory .......................................................................... $ 2,400.00 Cost of Goods Sold .................................................... $ 2,400.00 2. a. ($200,000 x .05) + ($45,000 x .20) + ($25,000 x .40) + ($10,000 x .60) = $35,000 Allowance for Doubtful Accounts Beg. Bal. $12,300.00 Bad Debt Expense X End. Bal. (aging schedule) $35,000.00 $12,300 + X = $35,000 X = Bad Debt Expense = $22,700 Net Realizable Value = $280,000 - $35,000 = $245,000Accounts Receivable (AR) – Practice Problems Solutions Pg 2 Problem 2 continued b. (2$00,000 x .05) + ($45,000 x .20) + ($25,000 x .40) + ($10,000 x .60) = $35,000 Allowance for Doubtful Accounts Beg. Bal. $12,300.00 Bad Debt Expense X End. Bal. (aging schedule) $35,000.00 X - $12,300 = $35,000 X = Bad Debt Expense = $47,300 Net Realizable Value = $280,000 - $35,000 = $245,000 3. a. Accounts Receivable Turnover Formula Year 3 Year 2 Parker Sales Revenue $3,700,000 $3,875 Enterprises, Inc. Average Accounts Receivable ($1,400 + $1,800)/2 ($1,800 + $1,725)/2 2.3 times 2.2 times Boulder, Inc. Sales Revenue $17,825,000 $16,549 Average Accounts Receivable ($5,525 + $5,800)/2 ($5,800 + $6,205)/2 3.1 times 2.8 times Average Collection Period Parker Enterprises, Inc. 365 ÷ 2.3 = 159 days 365 ÷ 2.2 = 166 days Boulder, Inc. 365 ÷ 3.1 = 118 days 365 ÷ 2.8 = 130 days b. Boulder, Inc., appears to have the better credit management policy. Its turnover is higher and its average collection period is shorter than Parker’s.Accounts Receivable (AR) – Practice Problems Solutions Pg 3 4. Average collection period = 365 ÷ Accounts receivable turnover 50 = 365 ÷ Accounts receivable turnover Accounts receivable turnover = 365 ÷ 50 = 7.3 Accounts receivable turnover = Net sales revenue ÷ Average accounts receivable 7.3 = Net sales revenue ÷ ($400,000 + $300,000)/2 7.3 = Net sales revenue ÷ $350,000 Net sales revenue = 7.3 x $350,000 = $2,555,000 5. (a) Accounts Receivable Beg. Bal. $ 900,000.00 Cash Collections $4,500,000.00 Credit Sales $5,000,000.00 Write-offs $ 60,000.00 End. Bal. $1,340,000.00 (b) Bad debt expense = $5,000,000 x .022 = $110,000 Allowance for Doubtful Accounts Beg. Bal. $ 50,000.00 Write-offs $60,000.00 Bad Debt Expense $110,000.00 End. Bal. $100,000.00 Net realizable value = 1,340,000 - 100,000 = $1,240,000Accounts Receivable (AR) – Practice Problems Solutions Pg 4 6. a. Accounts Receivable ....................................................... $1,050,000.00 Sales Revenue ........................................................... $1,050,000.00 To record the sales on account Cash ................................................................................. $ 670,000.00 Accounts Receivable ................................................ $ 670,000.00 To record the cash collected from credit customers Allowance for Doubtful Accounts ................................... $ 4,000.00 Accounts Receivable ................................................ $ 4,000.00 To record the write-off of accounts receivable Cash ................................................................................. $ 5,000.00 Allowance for Doubtful Accounts ............................ $ 5,000.00 To record the recovery b. Bad debt expense = $1,050,000 x .03 = $31,500 Bad Debt Expense ........................................................... $31,500.00 Allowance for Doubtful Accounts ............................ $31,500.00 To record the bad debt expense estimate c. Allowance for Doubtful Accounts Beg. Bal. $ 2,350.00 Recoveries $ 5,000.00 Write-offs $4,000.00 Bad Debt Expense $31,500.00 End. Bal. $34,850.00 Net realizable value = $516,000 - $34,850 = $481,150Accounts Receivable (AR) – Practice Problems Solutions Pg 5 Problem 6 continued d. ($400,000 x .03) + ($70,000 x .06) + ($30,000 x .10) + ($16,000 x .40) = $25,600 Allowance for Doubtful Accounts Beg. Bal. $ 2,350.00 Recoveries $ 5,000.00 Write-offs $4,000.00 Bad Debt Expense X End. Bal. (aging schedule) $25,600.00 $2,350 + $5,000 + X - $4,000 = $25,600 X = Bad Debt Expense = $22,250 Bad Debt Expense ........................................................... $22,250.00 Allowance for Doubtful Accounts ............................ $22,250.00 To record the bad debt expense estimate for the year e. Net Realizable Value = $516,000 - $25,600 = $490,400Accounts Receivable (AR) – Practice