The December 31, 2014 balance sheet of Barone Company had Accounts Receivable of

Question

The December 31, 2014 balance sheet of Barone Company had Accounts Receivable of $400,000 and a credit balance in Allowance for Doubtful Accounts of $32,000. During 2015, 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.

Journalize the 2015 transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit (To record credit sales) (To record credits to customers) (To record collection of receivables) To write off specific accounts) (To reverse write-off of account)

Explanation / Answer

JOURNAL ENTRIES ACCOUNTS TITLE DR in $ CR in $ Accounts receivable Dr. 1,500,000 Sales revenue Cr. 1,500,000 (For credit sales) Sales return and allowances Dr. 50,000 Accounts receivable Cr. 50,000 For credit of receivables) Cash account Dr. 1,250,000 Accounts receivable Cr. 1,250,000 (for collection of cash) Allowances for Doubtful Debts Dr. 36000 Accounts receivable Cr. 36000 (for write off) Accounts receivable Dr. 6000 Allowance for doubtful debts Cr. 6000 (to reverse write off) Cash account Dr. 6,000 Accounts receivable Cr. 6,000 (for collection of above account) Req: Net credit sales = Sales - Sales returns and allowance = 1500,000 -50,000 = $1450,000 Balance of allowance for doubtful debts at the end =1450,000*3% = $43,500 Amount to be transferred to bad debts expense: Closing balance required 43500 Add: Write off 36000 Less: Write off reinstated 6000 Less: Opening balance 32000 Transferred to bad debts expense 41,500 Bad debts expense Dr. 41500 Allowance for doubtful debts Cr. 41500 (for keeping allowance for doubtful debt to 3 % of net credit sales) Req : Accounts receivable at the end: Opening accounts receivable 400,000 Add: Net creditr sales 1,450,000 Less: cash received 1,250,000 Less: Bad debts written off 36,000 Closing balance of accounts receivable 564,000 Closing allowance for doubtful debts(8% of closing accounts receivable i.e. 564,000) = 45,120 Amount to be transferred to bad debts expense: Closing balance required 45120 Add: Write off 36000 Less: Write off reinstated 6000 Less: Opening balance 32000 Transferred to bad debts expense 43,120 Bad debts expense Dr. 43120 Allowance for doubtful debts Cr. 43120 (for keeping allowance for doubtful debt to 3 % of net credit sales) Req : Method of 3% of credit sales as allowance for doubtful debts give higher net income Incremental net income in that mehtod will be (43120-41500) = $1620

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