both 3 and 4 Instructions Prepare the journal entry to record bad debt expense a
ID: 2567756 • Letter: B
Question
both 3 and 4
Instructions Prepare the journal entry to record bad debt expense assuming Sand estimates bad debts at (a) 1% of net sales and (b) 5% of accounts receivable. (10 p el Company pts.) Exercise # 3 At the end of 2012, Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40.000. On January 16, 2013, Sorter Company determined that its receivable from Ordonez Company of $8,000 will not be collected, and management authorized its write-off Instructions (a) Prepare the journal entry for Sorter Company to wnite off the Ordonez receivab e. (2 pts.) write-off of the Ordonez receivable? (4 pts.) write-off of the Ordonez receivable? (4 pts.) (b) What is the net realizable value of Sorter Company's accounts receivable before the (c) What is the net realizable value of Sorter Company's accounts receivable after the Exercise # 4 The chief accountant for Dollywood Corporation provides you with the following list of accounts receivable written off in the current year Date Customer Amount E. L. Masters Company $7,800 9,700 September 30 Amy Lowell's Dress Shop 7,000 March 31 June 30 Hocking Associates December 31 R. Bronson, Inc. 9,830 Dollywood Corporation follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts. All of Dollywood Corporation's sales are on a 30-day credit basis. Sales for the current year total $2.400,000, and research has determined that bad debt losses approximate 2% of sales Instructions (a) Do you agree or disagree with Dollywood's policy conceming recognition of bad debt expense? Why or why not? (5 pts.) (b) By what amount would net income difter if bad debt expense was computed using the percentage-of-sales approach? (5 pts.)Explanation / Answer
Ex: 3:
a.
Since there is allowance account, the direct entry should not be made for written-off.
Journal entry
Date
Accounts titles and explanations
P.ref
Debit $
Credit $
16/01/2013
Allowance for doubtful accounts
8,000
Accounts receivable – O. Company
8,000
To record written off of uncollectible
b.
Before:
Net realizable value = Beginning accounts receivable – Beginning allowance account
= $900,000 - $40,000
= $860,000 (Answer)
c.
After:
Net realizable value = (Beginning accounts receivable – Written off adjustment) – (Beginning allowance account – Written off adjustment)
= (900,000 – 8,000) – (40,000 – 8,000)
= 892,000 – 32,000
= $860,000 (Answer)
Note: Net realizable value (before and after) should be unaffected under the adjustment through allowance method.
Date
Accounts titles and explanations
P.ref
Debit $
Credit $
16/01/2013
Allowance for doubtful accounts
8,000
Accounts receivable – O. Company
8,000
To record written off of uncollectible
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