Presented below is information related to the Accounts Receivable accounts of Gu

Question

Presented below is information related to the Accounts Receivable accounts of Gulistan Inc during the current year 2014.

An aging schedule of the accounts receivable as of December 31, 2014, is as follows.

                                                           % to be Applied after

      Age                   Net debit balance        Correction is made

      Under 60 days         $   172,342                       1 %

      61 - 90 days                 136,490                       3 %

      91 – 120 days                 39,924                       6 %

      Over 120 days         _     23,644          $ 4,200 definitely uncollectible, estimated

                                     $   372,400          remainder uncollectible is 25 %

2. The accounts receivable control account has a debit balance of $ 372,400 on December 31, 2014.

3. Two entries were made in the bad debt expense account during the year (a) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (b) a credit for $ 2,740 on November 3, 2014, and a debit to Allowance for Doubtful Accounts because a bankruptcy.

4. The Allowance for Doubtful accounts is as follows for 2014.

    

     _                                       Allowance for Doubtful Accounts                           _

     Debit                                                      Credit

     Nov 3, Uncollectible accounts                 Jan 1, Beginning balance           8,750

                Written off                        2,740 Dec 31, 5 % of $ 372,400         18,620

5. A credit balance exists in the accounts receivable (61-90 days) of $ 4,840, which represents an advance on a sales contract.

Instructions :

Assuming the books have not been closed for 2014, make the necessary correcting entries

Explanation / Answer

As, there is a credit for $4,840 in 61- 90 days, this needs to be added to arrive at the correct balance in that period.

So, the allowance that needs to be created after correcting this is as follows:

Correction entry for closing the books is as follows:

Journal entry for correction:

Age Net debit balance Corrected balance % to be applied Doubtful debts Under 60 days $172,342.00 $172,342.00 1% $1,723.42 61- 90 days $136,490.00 $141,330.00 3% $4,239.90 91-120 days $39,924.00 $39,924.00 6% $2,395.44 Over 120 days $23,644.00 $23,644.00 4200 definitely uncollectible and balance 25% uncollectible $9,061.00 Total $372,400.00 $377,240.00 $17,419.76

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