Question

Required Information PA8-4 Accounting for Accounts and Notes Receivable Transactions [LO 8-2, LO 8-3] [The following information applies to the questions displayed below.] Web Wizard, Inc., has provided Information technology services for several years. For the first two months of the current year, the company has used the percentage of credit sales method to estimate bad debts. At the end of the first quarter, the company switched to the aging of accounts recelvable method. The company entered into the following partial list of transactions during the first quarter. a. During January, the company provided services for $37.000 on credit. b. On January 31, the company estimated bad debts using 2 percent of credit sales c. On February 4, the company collected $18,500 of accounts receivable. d. On February 15, the company wrote off a $150 account receivable. e During February, the company provided services for $27.000 on credit f. On February 28, the company estimated bad debts using 2 percent of credit sales g. On March 1, the company loaned $2.600 to an employee, who signed a 6% note, due in 6 month h. On March 15, the company collected $150 on the account written off one month earlier On March 31, the company accrued interest earned on the note J. On March 31, the company adjusted for uncollectible accounts, based on an aging analysis (below). Allowance for Doubtful Accounts has an unadjusted credit balance of $1170

Answer 1

Solution 1:

Event	Assets	=	Liabilities	+	Stockholder's Equity
a	Accounts receivables	$37,000.00					Service revenue	$37,000.00
b	Allowance for doubtful accounts	-$740.00					Bad debts expense	-$740.00
c	Cash	$18,500.00
	Accounts receivables	-$18,500.00
d	Allowance for doubtful accounts	$150.00
	Accounts receivables	-$150.00
e	Accounts receivables	$27,000.00					Service revenue	$27,000.00
f	Allowance for doubtful accounts	-$540.00					Bad debts expense	-$540.00
g	Note receivables	$2,600.00
	Cash	-$2,600.00
h	Accounts receivables	$150.00
	Allowance for doubtful accounts	-$150.00
	Cash	$150.00
	Accounts receivables	-$150.00
i	Interest receivables	$13.00					Interest revenue	$13.00
J	Allowance for doubtful accounts	-$466.00					Bad debts expense	-$466.00

Computation of allowance for estimated uncollectibles - Web Wizard
Customer	Balance	0-30 days	31-60 days	61-90 days	Over 90 days
Total Receivables	$17,590.00	$7,000.00	$8,190.00	$1,130.00	$1,270.00
Percentage uncollectibles		3%	10%	20%	30%
Allowance for doubtful accounts	$1,636.00	$210.00	$819.00	$226.00	$381.00

Solution 3:

Web Wizard Inc. (Partial Balance Sheet)
At March 31
Assets		Amount
Current Assets:
Accounts receivables - Gross	$17,590.00
Allowance for doubtful accounts	$1,636.00
Accounts receivables, net of allowance		$15,954.00
Note Receivables		$2,600.00
Interest receivables		$13.00

Solution 4:

Web Wizard would report:
Bad debts expense	before	Income from operations
Interest revenue	after	Income from operations