Question

The accounts receivable balance for Renue Spa at December 31, Year 1. was $81,000. Also on that date, the balance in the Allowance for Doubtful Accounts was $2,500. Total retained earnings at the end of Year 1 was $78,500. During Year 2, S1,900 of accounts receivable were written off as uncollectible. In addition, Renue unexpectedly collected $120 of receivables that had been written off in a previous accounting period. Services provided on account during Year 2 were $217.000, and cash collections from receivables were $218,991. Uncollectible accounts expense was estimated to be 1 percent of the sales on account for the period. Required a. Organize the information in accounts under an accounting equation b. Based on the preceding information, compute (after year-end adjustment): 1. (1) Balance of Allowance for Doubtful Accounts at December 31, Year 2. 2. (2) Balance of Accounts Receivable at December 31, Year 2. 3. (3) Net realizable value of Accounts Receivable at December 31, Year 2 c. What amount of uncollectible accounts expense will Renue Spa record for Year 2?

Answer 1

a.

RENUE SPA
Horizontal Statements Model
Event	Assets		=	Liabilities	+	Equity	Account Titles for Retained Earnings
	Cash	NRV Accounts Receivable				Retained Earnings
Bal.	0	78500	=	0	+	78500
1		1900	=		+
		-1900	=		+
2	120	-120	=		+
3		217000	=		+	217000	Service revenue
4	218991	-218991	=		+
5		-2170	=		+	-2170	Uncollectible accounts expense
Bal.	219111	74219	=	0	+	293330

Uncollectible accounts expense = 1% x $217000 = $2170

b-1.	Allowance for doubtful accounts	2890
b-2.	Accounts receivable	77109
b-3.	Net realizable value	74219
c.	Uncollectible accounts expense	2170