The trial balance of Watson International for Dec. 31, 2016, includes the follow

Question

The trial balance of Watson International for Dec. 31, 2016, includes the following balances:

Debit Credit

Sales $600,000 (credit

Sales Returns Allowances $32,000 (debit)

Accounts Recievable $140,000 (debit)

Allowance for Doubtful Accts $4,700 (credit

If the estimate for uncollectibles is made by taking 2% of net sales, estimate bad debt expense and provide the journal entry to fund the Allowance for Bad Debts account.

If the estimate for uncollectibles is made by taking 11% of gross account receivables, estimate bad debt expense and provide the journal entry to fund the Allowance for Bad Debts account.

Provide the journal entry to write off $7200 in accounts receivables.

Suppose $2400 of the $7200 previously written off receivables ended up being paid. What journal entry (or entries) would you use to handle this transaction.

Explanation / Answer

Solution:

Journal Entries:

Working Note:

1) 2% of net Sales = (600,000 - 32,000) * 2%

2) 11% of gross Account Receivables = (140,000 * 11% - 4,700) = 10,700

General Journal Debit Credit a Bad Debt Expense 11,360 Allowance for Doubtful Accounts 11,360 2% of net Sales (600,000 - 32,000) b Bad Debt Expense 10,700 Allowance for Doubtful Accounts 10,700 11% of gross Account Receivables c Allowance for Doubtful Accounts 7,200 Accounts Receivables 7,200 To write off 7,200 in Accounts Receivables d Accounts Receivable 2,400 Allowance for Doubtful Accounts 2,400 Cash 2,400 Accounts Receivable 2,400

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