At December 31 of the current year, a company reported the following: Total sale

Question

At December 31 of the current year, a company reported the following: Total sales for the current year: $5.320.000. Accounts receivable balance at Dec. 31. end of current year: $450,000 Allowance for Doubtful Accounts balance at Dec. 31:600 credit 1. Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal: (a) 2.5% of credit sales. (b) 8% of accounts receivable. 2. Prepare the necessary entry to write off J. Mohr's $800 A/R balance 3. Prepare the necessary entries to record the recovery of J. Mohr's A/R balance when he pays the company at later date.

Explanation / Answer

Journal Entry Date Particulars Dr Amt Cr Amt Part 1a Bad Debts                                                     Dr.          132,400    To Allowance for Doubtful Debts          132,400 Provision = $5,320,000 X 2.5% - 600 = $132400 (Assuming all sales are credit sales) Part 1b Bad Debts                                                     Dr.            35,400    To Allowance for Doubtful Debts            35,400 Provision = $450,000 X 8% - 600 = $35400 Part 2 Allowance for Doubtful Debts            Dr.                  800    To Accounts Receivables                  800 Part 3 1 Accounts Receivables                            Dr.                  800 To Allowance for Doubtful Debts                  800 2 Cash                                                               Dr.                  800    To Accounts Receivables                  800

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