Web Wizard, Inc., has provided information technology services for several years. The company uses

Web Wizard, Inc., has provided information technology services for several years. The company uses the percentage of credit sales method to estimate bad debts for internal monthly reporting purposes. At the end of each quarter, the company adjusts its records using the aging of accounts receivable method. The company entered into the following selected transactions during the first quarter of 2010.

 

(a)	During January, the company provided services for $41,500 on credit.
(b)	On January 31, the company estimated bad debts using 1 percent of credit sales on the current month services.
(c)	On February 4, the company collected $21,400 of accounts receivable.
(d)	On February 15, the company wrote off a $110 account receivable.
(e)	During February, the company provided services for $31,700 on credit.
(f)	On February 28, the company estimated bad debts using 1 percent of credit sales on the current month services.
(g)	On March 1, the company loaned $3,200 to an employee who signed a 6% note, due in 6 months.
(h)	On March 15, the company collected $110 on the account written off one month earlier.
(i)	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 $1,140.
(j)	On March 31, the company accrued interest earned on the note.

 

Number of Days Unpaid
Customer	Total	0-30	31-60	61-90	Over 90
Alabama Tourism	$     200	$   100	$    80	$    20
Bayside Bungalows	410				$   410
Others (not shown to save space)	17,250	6,900	8,460	1,030	860
Xciting Xcursions	500	500
Total Accounts Receivable	$ 18,360	$ 7,500	$ 8,540	$ 1,050	$ 1,270
Estimated Uncollectible (%)		2%	10%	20%	50%

 

Requirement 1:
(a)	For items a – j, analyze the amount and direction ( + or – ) of effects on specific financial statement accounts and the overall accounting equation.

  

	Assets		=	Liabilities	+	Stockholders’ Equity
a.	Accounts receivable	+41,500				Service revenue	+41,500
b.	Allow. for doubtful accts	-415				Bad debt expense	-415
c.	Cash	+21,400
	Accounts receivable	-21,400
d.	Accounts receivable	-110
	Allow. for doubtful accts	+110
e.	Accounts receivable	+31,700				Service revenue	+31,700
f.	Allow. for doubtful accts	-317				Bad debt expense	-317
g.	Cash	-3,200
	Note receivable	+3,200
h.	Accounts receivable	+110
	Allow. for doubtful accts	-110
	Cash	+110
	Accounts receivable	-110
i.	Allow. for doubtful accts	-709				Bad debt expense	-709
j.	Interest receivable	+16				Interest revenue	+16

  

(b)	Prepare the journal entries for the above items. (Omit the "$" sign in your response.)

  

	General Journal	Debit	Credit
a.	Accounts receivable
	Service revenue
b.	Bad debt expense
	Allowance for doubtful accounts
c.	Cash
	Accounts receivable
d.	Allowance for doubtful accounts
	Accounts receivable
e.	Accounts receivable
	Service revenue
f.	Bad debt expense
	Allowance for doubtful accounts
g.	Note receivable
	Cash
h.	Accounts receivable
	Allowance for doubtful accounts
	Cash
	Accounts receivable
i.	Bad debt expense
	Allowance for doubtful accounts
j.	Interest receivable
	Interest revenue

 
rev: 03-02-2011

Explanation:

1:

i. Allowance for Doubtful Accounts AJE = $1,849 desired (see calculation below)

– $1,140 current

= $ 709 adjustment

 

	Total	0-30	31-60	61-90	>90
Total Accounts Receivable	$ 18360	$  7,500	$ 8,540	$ 1,050	$ 1,270
Estimated Uncollectible (%)		× 2%	× 10%	× 20%	× 50%
Estimated Uncollectible ($)	$   1,849	$     150	$     854	$     210	$    635

   j. Interest = Principal x Rate x Time = $3,200 x 6% x 1/12 = $16

Requirement 2:

Show how the receivables related to these transactions would be reported in the current assets section of a classified balance sheet. (Input all amounts as positive values.Omit the "$" sign in your response.)

  

WEB WIZARD, INC.
Partial Balance Sheet
At March 31, 2010
Assets
Current assets:
Accounts receivable	$
Less: Allowance for doubtful accounts		$
Note receivable
Interest receivable