The ledger of Costello Company at the end of the current year shows Accounts Rec

Question

The ledger of Costello Company at the end of the current year shows Accounts Receivable $144,100, Sales Revenue $844,400, and Sales Returns and Allowances $26,300.

1.) If Costello uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Costello determines that L. Dole’s $2,200 balance is uncollectible.

2.) If Allowance for Doubtful Accounts has a credit balance of $2,300 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 2% of net sales, and (2) 12% of accounts receivable.

3.) If Allowance for Doubtful Accounts has a debit balance of $320 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 2% of net sales and (2) 7% of accounts receivable.

Explanation / Answer

date Title Debit credit 1 Bad debt expense 2200 Accounts receivable 2200 [being receivable proes to be uncollectible] 2a Bad debt expense [(.02*(844400-26300)] = 16362-2300 14062 Allowance for doubtful account 14062 b Bad debt expense (144100 * .12) - 2300 14992 Allowance for doubtful account 14992 3a Bad debt expense [.02 (844400-26300)] = 16362+320 16682 Allowance for doubtful account 16682 b Bad debt expense   (144100*.07) +320 10407 Allowance for doubtful account 10407

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