On July 31, 2014, D’Amico Management Inc. reported the following account balance
ID: 2447681 • Letter: O
Question
On July 31, 2014, D’Amico Management Inc. reported the following account balances in its financial statements:
Accounts receivable............................................................. $ 960,000
Allowance for doubtful accounts......................................... $ 82,000
Bad debt expense................................................................. $ 78,000
During Aug 1 and Dec 31, 2014, D’Amico Management Inc. had the following transactions related to receivables, which occurred in order: The company prepares financial statements annually.
a. Sales were $4,000,000, of which $3,200,000 were on account.
b. Collections of accounts receivable were $3,100,000.
c. Write-offs of accounts receivable were $80,000.
d. Recoveries of accounts previously written off as uncollectible were $5,000.
Required:
1. Prepare the journal entries at the end of 2014 to record each of the four transactions (a)-(d) above.
2. Assume that D’Amico Management Inc. estimates its Bad Debt Expense based on an Aging Analysis of its year-end Account Receivable, which indicates that $40,000 is the desired ending balance for the Allowance for Doubtful account.
a. What amount of Bad Debt Expense will the company record for 2014 if it has a credit balance of $82,000 on July 31, 2014 in its Allowance for Doubtful Accounts?
b. What amount of Bad Debt Expense will the company record for 2014 if it has a debit balance of $82,000 on July 31, 2014 in its Allowance for Doubtful Accounts?
Explanation / Answer
1)
a) Bank Dr 800,000
Accounts Rec Dr 3,200,000
To Sales 4,000,000
b) Banks Dr 3,100,000
To Accounts Rec 3,100,000
c) Allowance for Doubtful Debts Dr 80,000
To Accounts Rec 80,0000
d) Accounts Receivable Dr 5,000
Allowance for Doubtful Debts Dr 5000
Bank Dr 5,000
Accounts Rec 5,000
2) a) Op Bal = 40,000
Cl Bal = 82,000(Cr)
Exp for bad debt = 0
b)
Op Bal = 40,000
Cl Bal = 82,000(Dr)
Exp for bad debt = 1,32,000
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