E9-3 The ledger of Hixson Company at the end of the current year shows Accounts
ID: 2366162 • Letter: E
Question
E9-3 The ledger of Hixson Company at the end of the current year shows Accounts Receivable $120,000, Sales $840,000, and Sales Returns and Allowances $30,000. Journalize entries to record allowance for doubtful accounts using two different bases. Instructions (a) If Hixson uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Hixson determines that Fell's $1,400 balance is uncollectible. (b) If Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable. (c) If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable. (Weygandt 423) Weygandt. Accounting Principles, 9th Edition. John Wiley & Sons. .Explanation / Answer
(a) The direct write-off method credits the account off accounts receivable and charges it directly to expense. The entry in this case would be: Debit bad debt expense $1,400 Credit Accounts Receivable $1,400 (b) Under the allowance for doubtful accounts method, which is what is used under GAAP, you make an adjustment to the allowance account and offset it to bad debt expense. When you write off an account, it's written off against this allowance and not bad debt expense as you would with the direct write-off method. If you assume that bad debts are assumed to be 1% of net sales: Net Sales = 840,000 - 28,000 (returns & allowances) = 812,000 812,000 x 1% = 8,120 Debit Bad Debt Expense 8,120 Credit Allowance for Doubtful Accounts 8,120 If you assume uncollectible accounts to be 10% of accounts receivable Balance needed in the Allowance for Doubtful Accounts = 110,000 x 10% = 11,000 (credit balance) If the Allowance for Doubtful Accounts currently has a credit balance of 2,100 then the adjustment needed is 11,000 - 2,100 = 8,900 (credit adjustment). The adjusting entry is: Debit Bad Debt Expense 8,900 Credit Allowance for Doubtful Accounts 8,900 (c) It looks like it cut off part of the question. Can't answer it without knowing what the assumptions are.
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