CATEGORY AMOUNT ESTIMATED PERCENT UNCOLLECTIBLE ESTIMATED AMOUNT

Current 500000 10% 50000

Past Due
1
1-30 days 200000 30% 60000
Over 30 days 100000 75% 75000
TOTALS 800000 185000

DATE ACCOUNTS DEBIT CREDIT To record bad debts.

Bad Debt Expenses 165000
2
Allowance for doubtful expense 165000
 ESTIMATED AMOUNT UNCOLLECTIBLE
50000

60000
75000
185000

To record bad debts.

Credit balance required in allowance account after adjustment 185000
Less : Credit balance in allowance account before adjustment 20000
Amount for bad debt expense entry 165000
 ACCOUNTS RECEIVABLES, 12/31/12 320100 (Dr)
ALLOWANCE FOR DOUBTFUL ACCOUNTS 2600 (Cr)
NET CREDIT SALES, 2012 834000 (Cr)

Bad Debt Expense 16680 (Net Credit Sales*2%)

JOURNAL ENTRY
a)
DATE ACCOUNTS DEBIT CREDIT
Bad Debt Expenses 16680
1
Allowance for doubtful expense 16680

Bad Debt Expense 16606 ((Accounts Receivable * 6%) - Allowance for Doubtful Accounts)

JOURNAL ENTRY
b)
DATE ACCOUNTS DEBIT CREDIT
Bad Debt Expenses 16606
Allowance for doubtful expense 16606

ACCOUNTS RECEIVABLES, 12/31/12 320100 (Dr)

ALLOWANCE FOR DOUBTFUL ACCOUNTS 2600 (Dr)
NET CREDIT SALES, 2012 834000 (Cr)

Bad Debt Expense 16680 (Net Credit Sales*2%)

JOURNAL ENTRY
a)
DATE ACCOUNTS DEBIT CREDIT
Bad Debt Expenses 16680
2
Allowance for doubtful expense 16680

Bad Debt Expense 21806 ((Accounts Receivable * 6%) + Allowance for Doubtful Accounts)

JOURNAL ENTRY
b)
DATE ACCOUNTS DEBIT CREDIT
Bad Debt Expenses 21806
Allowance for doubtful expense 21806
or Doubtful Accounts)

or Doubtful Accounts)
 DATE ACCOUNTS DEBIT CREDIT
CASH 157500
ACCOUNTS RECEIVABLE 630000
SALES REVENUE 787500

DATE ACCOUNTS DEBIT CREDIT

1
CASH 502500
ACCOUNTS RECEIVABLE 502500

DATE ACCOUNTS DEBIT CREDIT

ALLOWANCE FOR DOUBTFUL ACCOUNTS 3000
ACCOUNTS RECEIVABLE 3000

TOTAL SALES REVENUE 630000

BAD DEBT EXPENSE 18900
JOURNAL ENTRY
a)
DATE ACCOUNTS DEBIT CREDIT
Bad Debt Expenses 18900
Allowance for doubtful expense 18900
2
ACCOUNT RECEIVABLES 229500
BAD DEBT EXPENSE 14820
JOURNAL ENTRY
b)
DATE ACCOUNTS DEBIT CREDIT
Bad Debt Expenses 14820
Allowance for doubtful expense 14820
 NET REALIZABLE VALUE = ACCOUNTS RECEIVABLES - ALLOWANCE FOR DOUBTFUL ACCOUNTS
TOTAL ACCOUNT RECEIVABLES 229500

ALLOWANCE FOR DOUBTFUL ACCOUNTS 17850

3 a)
NET REALIZABLE VALUE 211650

ALLOWANCE FOR DOUBTFUL ACCOUNTS 13770

b)
NET REALIZABLE VALUE 215730

The bad debt expense increases the ADA value thus it decreases the net realizable value
4
The write-off value increases both the account receivables and the ADA decreases by equal amount t
OUBTFUL ACCOUNTS

alizable value
creases by equal amount thus it does not have any effect on the net realizable value
 CATEGORY AMOUNT ESTIMATED PERCENT UNCOLLECTIBLEESTIMATED AMOUNT UNC
Current 200000 10% 20000
Past Due
< 1 month 60300 25% 15075
1 1-2 months 35000 35% 12250
over 2 months 45000 75% 33750
TOTALS 340300 81075

AMOUNT OF UNCOLLECTIBLE AMOUNT 81075

2 As a controller, I would add the estimated uncollectible amount of 40000 in the allowance for doubtful accounts an

Current Asset
Accounts Receivable 340300
3
Less : ADA 81075
Net Accounts Receivable 259225
 ESTIMATED AMOUNT UNCOLLECTIBLE
20000

15075
12250
33750
81075

ance for doubtful accounts and once the company files the bankruptcy the same amount should be written off
 DDB Rate = (100% / Useful Years) x 2

DDB Rate 0.4 (100% / 5)*2

YEAR RATE BEGINNING BOOK BALANCE DEPRECIATION ACCUMULATED DEPRECIATIO

1
2012 40% 6000 2400 2400
2013 40% 3600 1440 3840
2014 40% 2160 864 4704
2015 40% 1296 518.4 5222.4
2016 40% 777.6 177.6 5400

DATE ACCOUNTS DEBIT CREDIT

2 1-Jan DEPRECIATION EXPENSE 2400
ACCUMULATED DEPRECIATION 2400

Double Declining Balance method is a type of accelerated method of depreciation. Factors that would have infl
3 1) Technological competitiveness - to cope up with the fast changing technological changes in the ind
2) Reporting to the internal revenue services - to decrease the taxable income in reporting to the IRS
 ACCUMULATED DEPRECIATION ENDING BOOK VALUE
2400 3600
3840 2160
4704 1296
5222.4 777.6
5400 600

on. Factors that would have influenced the company to use this method is as follows :
chnological changes in the industry
ncome in reporting to the IRS
 Residual value decided in 2012 8000
Residual value decided in 2014 2000

YEAR BEGINNING BOOK BALANCE DEPRECIATION ACCUMULATED DEPRECIATION

2012 80000 8000 8000
1
2013 72000 8000 16000
2014 64000 15500 31500
2015 48500 15500 47000
2016 33000 15500 62500
2017 17500 15500 78000

2 The depreciation recorded for the years 2012 and 2013 are correct as they have been calculated based on the then
 ENDING BOOK VALUE
72000
64000
48500
33000
17500
2000

culated based on the then estimated residual value. Once the residual value changed the depreciation expenses were corrected and calcu
were corrected and calculated accordingly in the subsequent year
 DEPRECIATION EXPENSE = (ACQUISITION COST - RESIDUAL VALUE)/USEFUL LIFE

DEPRECIATION EXPENSE
YEAR DIFFERENCE IN EXPENSE
STRAIGHT LINE MACRS
1 5600 6720 1120
1
2 5600 10750 5150
3 5600 6450 850
4 5600 3870 1730
5 5600 3870 1730
6 5600 1940 3660

In general, depreciation calculated using the straight-line method is lowest in the early years and therefore, the res
The accelerated depreciation method allows the company to save more on taxes as depreciation is a tax shield; com
2
The use of different depreciation methods is legal and permitted. That's why many companies use different ways of
The advantage of using two different methods is to achieve the best of both worlds as we can report high profits to
y years and therefore, the result is the highest possible income. However, a high income also results in a higher income tax responsibility f
epreciation is a tax shield; companies use this method for income tax purposes.
mpanies use different ways of depreciating the same asset, one for financial reporting purposes and other for tax purposes.
s we can report high profits to shareholders and creditors using the straight-line method and also save taxes by using the accelerated depr
her income tax responsibility for society. Thus, to save taxes and minimize the company's tax liability, the straight-line method is not more

or tax purposes.
by using the accelerated depreciation method.
raight-line method is not more advantageou
 Straight line method of Depreciation -Pete's Painting Company
Assigned value of truck when purchased on Jan 1, 2012
Assigned value of tool chest and side racks for ladder when purchased on Jan 1, 2012
1 Assigned value of 10 cases of paint trays and roller covers when purchased on Jan 1, 2012
Assigned value of storage cabinets when purchased on Jan 1, 2012
Assigned value of ladders and scaffolding when purchased on Jan 1, 2012
Booked vaule of trucked when sold on Sep 1, 2012 = $12,000-((12000-800)/8)*(2012-2007)

Depreciation calculation 2012

a. Purchase of Truck on Jan 1, 2012 for $14,000
Amount of Depreciation =(14000-800)/4 3300

b. Expense of 10 cases of paint trays and roller covers for 2012 150
2 Amount of depreciation for Storage cabinets for 2012 = (450/9) 50
Amount of depreciation for ladders and scaffolding for 2012 = (1800/4) 450

c. License expense to operate business =(1500/36)*11 458.3333

d. Amount of depreciation of truck sold on Sep 1, 2012 = ((12000-800)/8)*4/12) 466.6667

y
14000 ASSETS =
4800 Truck 14000
150 Cash -3300
450 Accumulated Depreciation
1800 Truck -14000
5000 Chest and side racks 4800
Cash -4800
Paint tray and roller 150
Storage cabinets 450
3 Ladders and scaffolding 1800
Cash -2400
Accumulated Depreciation
Storage cabinets -50
Ladders and scaffolding -450
Accumulated Depreciation
Truck 7000
Cash 4800
Truck -12000
Total Asset -4000
LIABILITIES + STOCKHOLDERS' EQUITY

-3300

-500

-200

Total Liability & SE -4000