The Gadzooks Chip Company offers credit terms to its customers. At the end of 20

Question

The Gadzooks Chip Company offers credit terms to its customers. At the end of 2009, accounts receivable totaled $2,223,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $68,000 at the beginning of 2009 and $46,200 in receivables was written off during the year as uncollectible. No previously written off receivables were collected. The company estimates bad debts by applying a percentage of 3% to accounts receivable at the end of the year.

Required:
1. Prepare journal entries to record the write-off of receivables and the year-end adjusting entry for bad debt expense.
2. How would accounts receivable be shown in the 2009 year-end balance sheet?

Explanation / Answer

To compute for bad debts expense -2009 Accts Rec = $2,223,000 X 3% = 66,690 Allowance for Uncollectible Accounts 2009 Beg Bal = 68,000 Write offs = ( 46,200) Total = 21,800 66,690 - 21,800 = $44,890 (amount needed to increase the allowance to satisfy the company's estimated bad debts for 2009 which is 3% of 2,223,000) Entries: To record write off: Allowance for Doubtful Accounts - 46,200 Accounts Receivables 46,200 To record Bad Debts expense: Bad Debts Expense 44,890 Allowance for Doubtful Accounts 44,890 Balance Sheet presentation of Accounts Receivable Accounts Receivables 2,223,000 Less: Allowance for Doubtful Accounts 66,690 Net Accounts Receivables 2,156,310

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