#2 (6 points) At December 31 of the current year, a company reported the followi

Question

#2 (6 points) At December 31 of the current year, a company reported the following: Total sales for the current year: $5,320,000. Accounts receivable balance at Dec. 31, end of current year: $450,000 Allowance for Doubtful Accounts balance at Dec. 31: 600 credit 1. Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal: (a) 2.5% of credit sales. (b) 8% of accounts receivable. 2. Prepare the necessary entry to write off J. Mohr's $800 A/R balance. 3. Prepare the necessary entries to record the recovery of J. Mohr's A/R balance when he pays the company at later date. Accounts DebitCredit Part la Part 1b Part 2 Part 3 Show work below:

Explanation / Answer

Workings:

Part 1a: Bad debt expense = 2.5% x $5320000 = $133000

Note: The entire sales of the current year $5320000 is assumed to be credit sales for purpose of computing bad debts expense.

Part 1b: Allowance for doubtful accounts = 8% x $450000 = $36000

Credit balance in allowance for doubtful accounts = $600

Bad debts expense = $36000 - $600 = $35400

Please post independent questions separately. Thank you.

Accounts Debit Credit Part 1a Bad debts expense 133000 Allowance for doubtful accounts 133000 (To record bad debts expense) Part 1b Bad debts expense 35400 Allowance for doubtful accounts 35400 (To record bad debts expense) Part 2 Allowance for doubtful accounts 800 Accounts receivable-J. Mohr 800 (To write off uncollectible accounts) Part 3 Accounts receivable-J. Mohr 800 Allowance for doubtful accounts 800 (To record recovery against accounts written off) Cash 800 Accounts receivable-J. Mohr 800 (To record collection on account)

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