Account Receivables

Question 1

STM Ltd. follows the balance sheet approach in determining its AFDA. The balance sheet of STM at December 31, 20X1, contained the following information:

Trade accounts receivable — (net of AFDA of $24,650): $821,600

During 20X2:
An amount of $6,000 was received from the trustee in bankruptcy of REC Ltd. This was the first indication of REC’s financial difficulties, and the accompanying letter said that no further amounts would be paid on the $15,000 total amount owed by REC prior to this payment.

Prepare the journal entry/entries for the transaction above.

Answer 1

DR Cash 6,000
DR Allowance for doubtful accounts 9,000
CR Accounts Receivable 15,000

To record payment of account in bankruptcy and write off remaining REC balance.

Question 2

STM Ltd. follows the balance sheet approach in determining its AFDA. The balance sheet of STM at December 31, 20X1, contained the following information:

Trade accounts receivable — (net of AFDA of $24,650): $821,600

During 20X2:
An amount of $1,600 was received from Total Risk Ltd. STM had written off Total Risk’s $3,200 account in 20X1.

Prepare the journal entry/entries for the transaction above.

Answer 2

DR Accounts Receivable 1,600
CR Allowance for doubtful accounts 1,600

DR Cash 1,600
CR Accounts Receivable 1,600
To reinstate Total Risk account previously written off.

Question 3

STM Ltd. follows the balance sheet approach in determining its AFDA. The balance sheet of STM at December 31, 20X1, contained the following information:

Trade accounts receivable — (net of AFDA of $24,650): $821,600

During 20X2:
Other accounts receivable, which totalled $24,000, were written off during the period.

Prepare the journal entry/entries for the transaction above.

Answer 3

DR Allowance for doubtful accounts 24,000
CR Accounts Receivable 24,000
To record write-offs of other accounts receivable.

Question 4

STM Ltd. follows the balance sheet approach in determining its AFDA. The balance sheet of STM at December 31, 20X1, contained the following information:

Trade accounts receivable — (net of AFDA of $24,650): $821,600

During 20X2:
An aging of accounts receivable at December 31, 20X2, indicated that $34,000 of the outstanding balances was likely to become uncollectable.

Other events:

1. An amount of $6,000 was received from the trustee in bankruptcy of REC Ltd. This was the first indication of REC’s financial difficulties, and the accompanying letter said that no further amounts would be paid on the $15,000 total amount owed by REC prior to this payment.
2. An amount of $1,600 was received from Total Risk Ltd. STM had written off Total Risk’s $3,200 account in 20X1.
3. Other accounts receivable, which totalled $24,000, were written off during the period.

Prepare the journal entry/entries for the transaction above.

Answer 4

DR Bad debt expense 40,750*
CR Allowance for doubtful accounts 40,750
To adjust AFDA to its correct ending balance.

                AFDA -------------------------------------------
                      |O/Bal   24,650 (1) 9,000            |
                      | (2) 1,600 (3)24,000         |
                      |(4) calc* -----------------------------------------------      E/Bal                   34,000