The following three entries are related to each other use the information provid

Question

    The following three entries are related to each other use the information provided in transaction "1.)" to help solve "2.)", and the information in "2.)" to help solve transaction "3.)".

1.)    Based on prior years experience Management of Taryn Incorporated have determined that 1.5% of sales revenue will ultimately become uncollectible. If Taryn Inc generated $22,300,000 in sales revenue in 2013, what journal entries would need to be recorded to account for Management's pre-determined assessment on the collectability of sales revenue generated?

2.)    Taryn Incorporated received a letter on January 15, 2013 from Justin Corporation one of the companies customers who has a receivables balance with Company in the amount of $37,500; the letter communicated to Taryn Inc, that Justin Corp was filing for bankruptcy and would not be able to pay their outstanding receivable balance. Based on the information communicated, Management of Taryn Inc believes that it is unlikely that they will ever recover the outstanding receivable balance. Prepare the necessary entry to account for Taryn Inc's conclusion on the collectability of the outstanding receivable balance.

3.)    Since submitting the letter to Taryn Incorporated Justin Corporation has experienced an unusual upswing in business, which tripled his profitability for a continuous three months. Given the new level of activity Justin Corp was able to forgo the bankruptcy proceedings and used some of the profits generated within the last few months to pay off the outstanding credit balance held by Taryn Incorporated. Prepare the entry that Taryn Incorporated would need to make to account for the payment received for Justin Corporations past due accounts receivable balance of $37,500.

Explanation / Answer

Journal Entries will be as follows

Date Account Title and Explanation Debit Credit 1 Bad Debts Expense $334500 Allowance for Bad Debts $334500 (Being Allowance of 1.5% made on Sales amount for Uncollectible Accounts) 2 Allowance for Bad debts $37500    Accounts Receivable $37500 (Being amount uncollectible due to Bankruptcy of the customer reduced from Accounts receivable) 3 Accounts Receivable $37500    Allowance for Bad debts $37500 (Entry for reversal of write off done due to receipt of the proceeds from customer) 4 Cash $37500 Accounts Receivable $37500 (Being Cash Received from the customer)

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