During its first year of operations, World Class Sport Shoes earned revenue of $

Question

During its first year of operations, World Class Sport Shoes earned revenue of $388,000 on account. Industry experience suggests that bad debts will amount to 4% of revenues. At December 31, 2012, accounts receivable total $35,000. The company uses the allowance method to account for uncollectibles. Requirements R1. Journalize World Class’ sales and uncollectible-account expense using the percent-of-sales method. R2. Show how to report accounts receivable on the balance sheet at December 31, 2012. Use the long reporting format illustrated in the chapter.

Explanation / Answer

1)

Journal entry for doubtful debts is as follows:

Date

Account titles and explanation

Debit($)

Credit($)

1

Allowance for doubtful debts

15,520

Accounts receivable

15,520

(To record the allowance for doubtful debts)

2)

The accounts receivable to be reported in balance sheet is as follows:

Particulars

Amount($)

Amount($)

Opening balance

35,000

Add:

Accounts receivable

388,000

Less:

Allowance for doubtful debts

15,520

372,480

Closing balance

407,480

Date

Account titles and explanation

Debit($)

Credit($)

1

Allowance for doubtful debts

15,520

Accounts receivable

15,520

(To record the allowance for doubtful debts)

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