At December 31, 2011, Kelso Imports reported this information on its balance she

Question

At December 31, 2011, Kelso Imports reported this information on its balance sheet.

Accounts Receivable $600,00

Less: Allowance for doubtful accounts $40,000

During 2012 the company had the following transactions related to receivables. Bad debt is estimated at 1.5% of credit sales at the year end.

1) Sales on account $2,500,000

2) Collections of accounts receivable $2,200,000

3) Write-offs of accounts receivable deemed uncollectible (Customer default) $45,000

A.) Enter all transactions

B.) Show how the A.R. and allowance account will be presented in 2012 balance sheet.

C.) Suppose this company used Direct Write off method, what will be the bad debt expense for 2012?

Explanation / Answer

Given -

A.) Enter all transactions

B.) Show how the A.R. and allowance account will be presented in 2012 balance sheet.

See the below calculation of movement of AR and Allowances

C.) Suppose this company used Direct Write off method, what will be the bad debt expense for 2012?

Direct write-off method does not use any allowance or reserve account. So whatever is uncollectible, are directly written off . When debt is determined as uncollectible, a journal entry is passed in which bad debt is debited and accounts receivable account is credited

Sales on account 2500000 Collections of accounts receivable 2200000 Write-Offs of AR uncollectable 45000 Bad Debt ( 1.5% of credit sales ) 37500

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