The 12/31/10 balance sheet of Sock Company had Accounts Receivable of $ 500.000
ID: 2428391 • Letter: T
Question
The 12/31/10 balance sheet of Sock Company had Accounts Receivable of $ 500.000 and a credit balance in Allowance for Uncollectable Accounts of $ 33.000. During 2011, the following transactions ocurred: Sales on account $ 1.200.000; Sales allowances $ 50.000: Collections from customers $ 1.165.000; Accounts written off $ 35.000; Previously written off accounts of $ 5.000 were collected.REQUIRED;
A. Jouralize the 2011 transactions.
B. If the company uses the % of Sales basis to estimate bad debt expense and anicipates 2% of net sales to be uncollectable, prepare the AJE for 12/31/11.
C.If the compant uses the % of receivables basis to estimate bad debt expense and determines that uncollectable accounts are expected to be 4% of accounts receivable, prepare the AJE for 12/31/11.
D. Independent of the above facts, briefly explain how accounting for bad debts can be used for eaenings statement.
Explanation / Answer
A. Journalising the 2011 transactions:
B. If the company uses % of sale method to estimate bad debt expenses:
Expected doubtful debt = 2% of net sales
= 2% x 1,200,000
= $ 24,000.
Therefore Adjusted journal entry for 12/31/10 is as follows,
Bad debt expenses a/c----------------Dr 24,000
Allowence for doubtful accounts---------------- 24,000
C.If the company uses % of receivable method to estimate bad debt expenses:
Allowence for doubtful accounts = 33,000 credit balance.
Un collectible accounts expenses = 4% of accounts receivable
= 4% x 1,200,000
= $ 48,000.
Here we have to deduct the allowence for doubtful debt from un collectible accounts expenses,
therefore, 48,000 - 33,000 = 15,000 it is the actual doubtful debt for the period after adjustment.
Therefore the adjusted entry for the 12/31/10 is as follows,
Bad debt debt expense----------------------------- 15,000
Allowence for doubtful expenses--------------- 15,000.
Date Particulars L/F $ Dr $ Cr 2011 Accounts receivable 1,200,000 Sales 1,200,000 2011 Sales allowences 50,000 Accounts recivable 50,000 2011 Cash 1,165,000 Accounts receivable 1,165,000 2011 Doubtful debt expenses 35,000 Accounts receivable 35,000 2011 Accounts receivable 5,000 Allowence for doubtful accounts 5,000Related Questions
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