Ex. 1 Tubbs Sign Company uses the allowance method in accounting for uncollectib
ID: 2571369 • Letter: E
Question
Ex. 1 Tubbs Sign Company uses the allowance method in accounting for uncollectible accounts. Past experience indicates that 1% of net credit sales will eventually be uncollectible. Selected account balances at December 31, 2015, and December 31, 2016, appear below Net Credit Sales Accounts Receivable Allowance for Doubtful Accounts 12/31/15 $300,000 60,000 4,800 12/31/16 $400,000 80,000 Instructions (a) Record the following events in 2016. Aug. 10 Determined that the account of L. Young for $600 is uncollectible. Sept. 12 Determined that the account of J. E. Ford for $3,400 is uncollectible. Oct. 10 Received a check for $400 as payment on account from L. Young, whose account had previously been written off as uncollectible. She indicated the remainder of her account would be paid in November Nov. 15 Received a check for $200 from L. Young as payment on her account (b) Prepare the adjusting journal entry to record the bad debt provision for the year ended December 31, 2016 What is the balance of Allowance for Doubtful Accounts at December 31, 2016? (c) Ex. 2 The December 31, 2015 balance sheet of Barone Company had Accounts Receivable of $400,000 and a credit balance in Allowance for Doubtful Accounts of $32,000. During 2016, the following transactions occurred: sales on account $1,500,000, sales returns and allowances, $50,000; collections from customers, $1,250,000; accounts written off $36,000; previously written off accounts of $6,000 were collected. Instructions (a) Journalize the 2016 transactions. (b) If the company uses the percentage-of-sales basis to estimate bad debt expense and anticipates 3% of net sales to be uncollectible, what is the adjusting entry at December 31, 2016? (c) If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 8% of accounts receivable, what is the adjusting entry at December 31, 2016? Ex. 3 Avett Furniture Store has credit sales of $400,000 in 2016 and a debit balance of $600 in the Allowance for Doubtful Accounts at year end. As of December 31, 2016, $130,000 of accounts receivable remain uncollected. The credit manager prepared an aging schedule of accounts receivable and estimates that $7,000 will prove to be uncollectible.Explanation / Answer
Example 1)
(A) Aug 10 - Allowance for Doubtful Debts .. Dr 600
To L. Young 600
Sept 12 – Allowance for Doubtful Debts ..Dr 3,400
To J.E.Ford 3,400
Oct 10 - L.Young ..Dr 600
To Allowance for Doubtful Debts 600
Bank ..Dr 400
To L.Young 400
Nov 15 - Bank ..Dr 200
To L.Young 200
(B) Bad Debts Expense = 1%*4,00,000 = 4,000
Adjusting Entry on December 31,2016
Bad Debts Expense ..Dr 4,000
To Allowance for Doubtful Debts 4,000
(C) New Balance of Allowance Account = 4,800 - 3400 + 4,000 = 5,400 Credit
Example 2)
(A)
Accounts Receivable ..Dr 1,500,000
To Sales 1,500,000
Sales Return & Allowances ..Dr 50,000
To Accounts Receivable 50,000
Bank ..Dr 1,250,000
To Accounts Receivable 1,250,000
Bad Debts Expense ..Dr 36,000
To Allowance for Doubtful accounts 32,000
To Account Receivable 4,000
Account Receivable ..Dr 6,000
To Allowance for Doubtful Debts 6,000
Bank ..Dr 6,000
To Account Receivable 6,000
(B)
Bad Debts Expense = 3%*1,64,000 = 4,920
Where net credit sales = 1,500,000 – 50,000 – 1,250,000 – 36,000 = 164,000
Adjusting Entry on December 31,2016
Bad Debts Expense ..Dr 4,920
To Allowance for Doubtful Debts 4,920
(C)
Accounts Receivable
Previous Year = 3,94,000 (4,00,000 – 6,000)
Current Year = 1,64,000 (1,500,000 – 50,000 – 1,250,000 – 36,000)
Total = 5,58,000
Bad Debts Expense = 8%*5,58,000 = 44,640
Adjusting Entry on December 31,
Bad Debts Expense ..Dr 44,640
To Allowance for Doubtful Debts 44,640
Example 3)
Incomplete Question - Doesn't mention what to do? Pass Journal Entry or calculate provision?
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