Treat the following as three parts as separate cases: Part 1 of 3 Lynbrook, Inc.

Question

Treat the following as three parts as separate cases:
Part 1 of 3 Lynbrook, Inc. applies the allowance method to record transactions relating to their accounts receivables. On December 31, 2018, the company had a debit balance of $475,000 in Accounts Receivable and a credit balance of $25,000 in their Allowance for Doubtful Accounts. During 2019, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows:

a. Provided $1,300,000 of delivery services on credit, terms n/30.

b. Wrote off $18,000 of uncollectible accounts receivable. c. Received $700,000 cash in payment of accounts receivable.

d. In adjusting the accounts on December 31, the company estimated that 2.5% of accounts receivable would be uncollectible.


Required: Prepare journal entries to record Lynbrook’s summarized transactions above and its year-end adjustments to record bad debts expense. (The company applies the allowance method for its accounts receivable. Round amounts to the nearest dollar.)

Explanation / Answer

Journal entries: S.no. Accounts title and explanations Debit $ Credit $ a. Accounts receivable Dr. 1300000     Delivery service revenue 1300000 b. Allowance for doubtful accounts Dr. 18000     Accounts receivable 18000 c. Cash account Dr. 700000      Accounts receivable 700000 d. Bad debts expenses Dr. 19425     Allowance for doubtful accounts 19425 Note: Bad debts expenses Accounts recievable in beginning 475000 Add: Credit revenue 1300000 Less: Collections -700000 Less: Amount written off -18,000 Accounts receivable at the end 1,057,000 Estimated uncollectibles 2.50% Required balance of Allowance 26425 Actual balance of allowance: Beginning balance 25000 Less: Amount written off 18000 Actual balance of allowance: 7000 Bad debts expense (26425-7000) 19425

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