Percentage of Credit Sales Clarissa Company has credit sales of $550,000 during

Question

Percentage of Credit Sales

Clarissa Company has credit sales of $550,000 during 2013 and estimates at the end of 2013 that 2.5% of these credit sales will eventually default. Also, during 2013 a customer defaults on a $775 balance related to goods purchased in 2012. Prior to the write-off for the $775 default, Clarissa's accounts receivable and allowance for doubtful accounts balances were $402,000 and $129 (credit), respectively.

Required:

1. Prepare the journal entry to record the defaulted account.

Account and Explanation

Debit

Credit

Correct 5 of Item 1

Correct 6 of Item 1

Correct 7 of Item 1

Correct 8 of Item 1

Record write-off of defaulted account

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Solution

2. Prepare the adjusting entry to record the bad debt expense for 2013.

Account and Explanation

Debit

Credit

Correct 5 of Item 2

Correct 6 of Item 2

Correct 7 of Item 2

Correct 8 of Item 2

Record adjusting entry for bad debt expense estimate

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1. Prepare the journal entry to record the defaulted account.

Account and Explanation

Debit

Credit

Correct 5 of Item 1

Correct 6 of Item 1

Correct 7 of Item 1

Correct 8 of Item 1

Record write-off of defaulted account

Explanation / Answer

Credit Sales 550000 Expected Default 550000*2.5% 13750 Actual bad debt 775 Allowance for doubtful debt 129 Balance 646 Provision for doubtful debt 13750      To Doubtful Debt 13750 Bad Debt Dr 646          To Accounts Receivable 646

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