The Links Company uses the percent of sales method of accounting for uncollectib

Question

The Links Company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transactions occurred: 4n Sept 7 Links Company determined that the $8,000 account receivable of the Rainier Company was uncollectible, and wrote it off. Oct 15 Links Company determined that the $3,500 account receivable of the Olympic Company was uncollectible and wrote it off. Nov 9 Rainier Company paid $6,000 of the amount owed to the Links Company. Links Company does not expect further collections from the Rainier Company. Dec 3 1 Links Company estimates that 1% of its $1,900,000 of credit sales would be uncollectible. 1. Prepare the general journal entries to record these transactions. 2. If the balance of the allowance for uncollectible accounts was a $4,000 credit on January 1 of the current year, determine the balance of the allowance for uncollectible accounts at December 31 of the current year. Assume that the transactions above are the only transactions affecting the allowance for uncollectible accounts during the year.

Explanation / Answer

1.

Sep 7 Bad debts written off a/c Dr $8000

To Allowance for uncollectible account $ 8000

( Being Bad debts written for rainer company)

Oct 15 Bad debts written off a/c Dr $ 3500

To Allowance for uncollectible account $ 3500

( Being Bad debts written for Olympic company)

Nov 9 Cash A/c Dr $ 6000

To Bad debts recoverable $ 6000

( Being entry for bad debts recovered accounted for )

Dec 31 Allowance for uncollectible account ( 1% * 19,00,000) $ 19000

To Debtors A/c $ 19000

( Being entry for estimate bad debts accounted )

2. Allowance for Uncollectible account

Jan 1 Opening $ 4000 CR

Sep 7 Bad debts written off $ 8000 CR

Oct 15 Bad debts written off $ 3500 CR

Dec 31  Allowance for uncollectible account $ 19000 DR

Dec 31 Closing balance $ 3500 DR

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