December 31, 2016, when its Allowance for Doubtful Accounts had a debit balance
ID: 2549630 • Letter: D
Question
December 31, 2016, when its Allowance for Doubtful Accounts had a debit balance of $1,534, Indigo Corporation estimates that 8% of its accounts rec wable L. On balance of $74,100 will become uncollectible and records the necessary adjustment to Allowance for Doubtful Accounts. 2. On May 11, 2017, Indigo Corporation determined that B. Jared's account was uncollectible and wrote off $1,171. 3. On June 12, 2017, Jared paid the anount previously written off Prepare the journal entries on December 31, 2016, May 11, 2017, and June 12, 2017. (Credit account titles are automatically indented when amount is enter Do not indent manually.) No. Date Account Titles and Explanation Debit Credit 1. December 31, 2016 2. May 11, 2017 3. June 12, 2017 (To reinstate account previously written off)Explanation / Answer
As on Dec 31 company estimates 8% of bad debts i.e., 74100x8% = 5928.Since it gas a debit balance of 1534 this account will be credited by 5928+1534 = 7462. So the entry is
Bad debts A/c Dr 7462
To Allowance for doubtful accounts A/c. 7462
On may 11since actual bad debts occured it will be written off against accounts receivable. So the entry is:
Allowance for doubtful accounts A/c Dr 1171
To Accounts Receivable A/c. 1171
On june 12 when the bad debts ate recovered it should be treated as income. So the entry is:
Cash A/c. Dr 1171
To Bad debts recovered A/c. 1171
This bad debts recovered account will be transferred to Profit or loss a/c at the end of year.
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