PROBLEM #6-Bad Debts At the end of the current year, Leritz Shipping had the fol

Question

PROBLEM #6-Bad Debts At the end of the current year, Leritz Shipping had the following account balances: Accounts Receivable $300,000 Sales $2,600,000 (all on credit) Allowances for Bad Debts $3,000 (Cr. Balance) A) REQUIRED: Using the Direct Write-off Method, 1) Journalize the adjusting entry at the end of 2002. 2) Journalize the entry if a $50 debt proves to be uncollectible on June 1, 2003. 3) Journalize the entries (two) if the debt written off on June 1 is collected on June 30, 2003. B) REQUIRED: Using the Net Sales Method 1) Journalize the adjusting entry at the end of 2002 assuming that the company estimates that 3% of its sales will be uncollectible. 2) Journalize the entry if a $50 debt proves to be uncollectible on June 1, 2003. 3) Journalize the entries (two) if the debt written off on June 1 is collected on June 30, 2003. C) REQUIRED: Using the Accounts Receivable Method, 1) Journalize the adjusting entry at the end of 2002 assuming that the company 2) Journalize the entry if a $50 debt proves to be uncollectible on 3) Journalize the entries (two) if the debt written off on June 1 is collected on June estimates that 4% of its Accounts Receivable will be uncollectible. June 1, 2003. 30, 2003.

Explanation / Answer

Journal entries Date Accounts title and explanation Debit $ Credit $ 31-Dec No entry 1-Jun Bad debt expense Account Dr. 50     Accounts receivable 50 30-Jun Accounts receivable Dr. 50      Bad debt expense' 50 Cash account Dr. 50    Accounts receivable 50 Req b: Journal entries Date Accounts title and explanation Debit $ Credit $ 31-Dec Bad debts expense Dr. 75000     Allowance for bad debts 75000 (2600,000*3% -3000) 1-Jun Allowance for bad debts Dr. 50     Accounts receivable 50 30-Jun Accounts receivable Dr. 50     Allowance for bad debts 50 Cash account Dr. 50    Accounts receivable 50 Req c: Journal entries Date Accounts title and explanation Debit $ Credit $ 31-Dec Bad debts expense Dr. 9000     Allowance for bad debts 9000 (300,000*4% -3000) 1-Jun Allowance for bad debts Dr. 50     Accounts receivable 50 30-Jun Accounts receivable Dr. 50     Allowance for bad debts 50 Cash account Dr. 50    Accounts receivable 50

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