E9-3 The ledger of Costello Company at the end of the current year shows Receiva

Question

E9-3 The ledger of Costello Company at the end of the current year shows Receivable $110,000, Sales Revenue $840,000, and Sales Returns and Allowances $20,000. Accounts Instructions (a) If Costello uses the direct write-off method to account for uncollectible accounts, jour- nalize the adjusting entry at December 31, assuming Costello determines that L. Dole's $1,400 balance is uncollectible. Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance, journalize the adjusting entry at D ( 1 ) 1 % of net sales, and (2) 1 0% of accounts receivable. (b) If ecember 31, assuming bad debts are expected to be (c) If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance, be journalize the adjusting entry at December 31, assuming bad debts are expected to (1) 0.75% of net sales and (2) 6% of accounts receivable.

Explanation / Answer

a Bad debts expense 1400         Accounts Receivable 1400 b 1 Bad debts expense 8200 =(840000-20000)*1%         Allowance for Doubtful accounts 8200 2 Bad debts expense 8900 =(110000*10%)-2100         Allowance for Doubtful accounts 8900 c 1 Bad debts expense 6150 =(840000-20000)*0.75%         Allowance for Doubtful accounts 6150 2 Bad debts expense 6800 =(110000*6%)+200         Allowance for Doubtful accounts 6800

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