Austin Incorporated has credit sales of $1,200,000 during 2012 and estimates at
ID: 2788857 • Letter: A
Question
Austin Incorporated has credit sales of $1,200,000 during 2012 and estimates at the end of 2012 that 1% of these credit sales will default (Austin uses the percentage-of-sales approach). During 2012 a customer defaulted on a $6,000 balance related to goods purchased during 2011. Austin's accounts receivable and allowance for bad debts balances at the end of the year were $50,000 debit and $7,000 credit, respectively (note - the $7,000 credit balance in the Allowance for Bad Debts account is the balance just before the adjusting entry to record 2012 bad debts expense - assume that the $6,000 write-off has already been posted to the Allowance for Bad Debts account).
Austin Incorporated has credit sales of $1,200,000 during 2012 and estimates at the end of 2012 that 1% of these credit sales will default (Austin uses the percentage-of-sales approach). During 2012 a customer defaulted on a $6,000 balance related to goods purchased during 2011. Austin's accounts receivable and allowance for bad debts balances at the end of the year were $50,000 debit and $7,000 credit, respectively (note - the $7,000 credit balance in the Allowance for Bad Debts account is the balance just before the adjusting entry to record 2012 bad debts expense - assume that the $6,000 write-off has already been posted to the Allowance for Bad Debts account).
A)
B)
C) What is the net accounts receivable balance at the end of the year after the adjustments have been made?
$
A)
B)
C) What is the net accounts receivable balance at the end of the year after the adjustments have been made?
$
A) Write off the defaulted $6,000 balance. B) Adjusting entry to record the bad debt expense for 2012.
A)
B)
Explanation / Answer
(a) Write off the defaulted balance Date Account Title Debit Credit Allowance for Bad Debts 6,000 Customer 6,000 (b) Adjusting entry to record the bad debts expenses 1% of the credit sales 12,000 Less: Balance exist in prov for doubtful debts 7,000 Bad Debts expeses for 2012 5,000 Date Account Title Debit Credit Bad Debts expeses 5,000 Provision for doubtful debts 5,000 C) Net accounts receivable balance at the end of the year after the adjustments have been made A/R Ending Balance 50,000 Less: Provision for doubtful Debts 12,000 A/R ending Balance (net) 38,000
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