The following information summarizes Spartan Corporation\'s receivable status at

Question

The following information summarizes Spartan Corporation's receivable status at 12/31/04: Debit Credit Accounts Receivable 80,000 Allowance for doubtful accounts 4,000 During 2005, the company had the following activity: Gross Sales (all on credit) 94,000 Cash receipts 100,000 Required: If Spartan estimates bad debts as 2percentage of credit sales, record the appropriate journal entries for these transactions. What are the values for bad debt expense, allowance for doubtful accounts and accounts receivable on the 12/31/05 financial statements? Comment on the adequacy of the Allowance for Doubtful Accounts at the end of 2005.

Explanation / Answer

31-12-2014 Accounts receivable 80000 Allowance for doubt ful debts 4000 In 2015 Gross sale            94,000 Cash receipts          100,000 Bad Debts Expenses 94000*2% = 1880 Bad Debts Expenses A/C dr. 1880 To Allowance for doubt ful Debts 1880 New Balance to allowance Accounts 4000+1880 = 5880 Accounts receivable at year end 2015 opening accounts receivable+sales-cash receipts 80000+94000-100000 = 74000

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