The ledger of Hixson Company at the end of the current yearshows Accounts Receiv

Question

The ledger of Hixson Company at the end of the current yearshows Accounts Receivable $120,000, Sales $840,000, and SalesReturn and Allowances $30,000.

Instructions

(a) If Hixson uses the direct write-off method to account foruncollectible accounts, journalize the adjusting entry at December31, assuming Hixson determines that Fell’s $1,400 balance isuncollectible.

(b) If Allowance for Doubtful Accounts has a credit balance of$2,100 in the trial balance, journalize the adjusting entry atDecember 31, assuming bad debts are expected to be (1) 1% of netsales, and (2) 10% of accounts receivable.

Explanation / Answer

(a) Allowance for DoubtfulAccount                       1,400            AccountReceivable                                                     1,400               Sales                                         840,000 Sales Return andAllowance         30,000 NetSales                                  810,000 (b) (1) 1% of Net sales       Allowance for DoubtfulAccount                       10,200            AccountReceivable                                                     10,200 8,100(1%net sales) + 2,100(Cr. balance) (2) Allowance for DoubtfulAccount                       14,100            AccountReceivable                                                     14,100 12,000(10% receivables) + 2,100 (Cr. Balance) (c) (1)Allowance for DoubtfulAccount                       5.875               AccountReceivable                                                     5,875 6,075(0.75% of net sales) - 200 (Dr. Balance) (2)Allowance for DoubtfulAccount                       7,000            AccountReceivable                                                     7,000 7,200(6% receivables) -200 (Dr. Balance)

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