Shamrock, Inc. uses the allowance method of accounting for bad debts. The compan

Question

Shamrock, Inc. uses the allowance method of accounting for bad debts. The company produced the following aging of the accounts receivable at year-end.

Number of Days Outstanding

Total

0–30

31–60

61–90

91–120

Over 120

SHOW LIST OF ACCOUNTS

LINK TO TEXT

Account Titles and Explanation

Debit

Credit

SHOW LIST OF ACCOUNTS

SHOW SOLUTION

LINK TO TEXT

Account Titles and Explanation

Debit

Credit

SHOW LIST OF ACCOUNTS

LINK TO TEXT

No.

Account Titles and Explanation

Debit

Credit

SHOW LIST OF ACCOUNTS

LINK TO TEXT

Shamrock, Inc. uses the allowance method of accounting for bad debts. The company produced the following aging of the accounts receivable at year-end.

Explanation / Answer

Solution:

Part 1 – Total Estimated Bad Debts

Total

0-30

31-60

61-90

91-120

Over 120

Accounts Receivable

$550,000

379000

92000

47000

20000

$12,000

% uncollectible

1%

4%

5%

8%

11%

Estimated Bad Debts

$12,740

3790

3680

2350

1600

1320

Total Estimated Bad Debts = $12,740

Part 2 –

Allowance for Doubtful Accounts is a $4,200 debit

We need to make Allowance for Doubtful Account to $12,740 Credit balance. To do that we need to pass following adjustment entry

General Journal

Debit

Credit

Bad Debt Expense ($12,740 + 4200)

$16,940

   Allowance for Doubtful Account

$16,940

Part 3 -- Of the above accounts, $5,500 is determined to be specifically uncollectible. Prepare the journal entry to write off the uncollectible account

General Journal

Debit

Credit

Allowance for Doubtful Account

$5,500

   Accounts Receivable

$5,500

Part 4 -- The company collects $5,500 subsequently on a specific account that had previously been determined to be uncollectible in part (c). Prepare the journal entry(ies) necessary to (1) restore the account and (2) record the cash collection

General Journal

Debit

Credit

(1)

Accounts Receivable

$5,500

   Allowance for Doubtful Account

$5,500

(2)

Cash

$5,500

   Accounts Receivable

$5,500

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Total

0-30

31-60

61-90

91-120

Over 120

Accounts Receivable

$550,000

379000

92000

47000

20000

$12,000

% uncollectible

1%

4%

5%

8%

11%

Estimated Bad Debts

$12,740

3790

3680

2350

1600

1320

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