story s Window Help 72% Thu 6:30 PM ereader.chegg.com ows Windows Marketplace Wi

Question

story s Window Help 72% Thu 6:30 PM ereader.chegg.com ows Windows Marketplace Windows Media Suggested Sites See What's Hot Web Sice Gallery Google Acple Disney ESPN Yahool Premium Paradise Kick ker Releases Bolou No Her.. Batman (201 Problems 7-2B Estimating and reporting bad debts P2 P3 At December 31,2017, Ingleton Company reports the following results for the year unti... nting for $1,025,000 1,342,000 Credit sales... ble In addition, its unadjusted trial balance includes the following items: $575,000 debit 7,500 credit Accounts receivable.... Allowance for doubtful accounts Required l 1. Prepart the adjusting entry for lnglton Co.to ncognize bad debs under eacth of the folowing independent assumptions. a. Bad debts are estimated to be 25% of credit sales. b. Bad debts are estimated to be 1.5% of total sales, c. An Cherk Dr. Bad Debrs Expense (1b) 535 505,()2000 gReserred May not be copied d or dupicated in whtle or in part except for use as erwse on a password protected web ste for cdlassroom ude scarine certan product or service or oth

Explanation / Answer

Solution:

Allowance for Doubtful Account Method

Under Allowance for Doubtful Debt method, the company uses an estimate for allowance for doubtful debt by using specified method and accordingly book Bad Debt Expenses for the period.

Allowance method creates bad debts expenses before the company knows specifically which customers will not pay on the basis of prior history and prior experience.

There are two approaches for recording of Bad Debt Expense under allowance for doubtful account method.

(i) Balance Sheet Approved or Accounts Receivable Aging Method -- Under this, on the basis of prior years’ experience company can reasonably estimated what percentage of accounts receivable measure will not be collected.

(ii) Income Statement Approach or Percentage on Credit Sales method --- under this method, company can reasonably estimate what percentage of credit sales will not be collected.

Part 1a --- Adjusting entry

Uncollectible Amount = Credit Sales x 2.5% = $1,342,000 * 2.5% = $33,550

The amount of uncollectible account for the period is $33,550. We need to adjust the balance of Allowance for Doubtful Account to $33,350 to record Bad Debt Expense for the period.

Allowance for Doubtful Account has already $7,500 Credit balance. To make it $33,550 we need to credit $26,050 to this account and debit bad Debt expense by $26,050

General Journal

Debit

Credit

Bad Debt Expense

$26,050

Allowance for Doubtful Account

$26,050

Part 1b –

Uncollectible Amount = Total Sales x 1.5% = ($1,342,000 + $1,025,000) * 1.5%

= $2,367,000 * 1.5%

= $35,505

The amount of uncollectible account for the period is $35,505. We need to adjust the balance of Allowance for Doubtful Account to $35,505 to record Bad Debt Expense for the period.

Allowance for Doubtful Account has already $7,500 Credit balance. To make it $35,505 we need to credit $28,005 to this account and debit bad Debt expense by $28,005

General Journal

Debit

Credit

Bad Debt Expense

$28,005

Allowance for Doubtful Account

$28,005

Part 1c ---

Uncollectible Amount = Accounts Receivable at year end x 6%

= $575,000*6%

= $34,500

The amount of uncollectible account for the period is $34,500. We need to adjust the balance of Allowance for Doubtful Account to $34,500 to record Bad Debt Expense for the period.

Allowance for Doubtful Account has already $7,500 Credit balance. To make it $34,500 we need to credit $27,000 to this account and debit bad Debt expense by $27,000

General Journal

Debit

Credit

Bad Debt Expense

$27,000

Allowance for Doubtful Account

$27,000

Part 2 – Balance Sheet presentation of part 1a

Extract of Balance Sheet

December 31, 2017

Assets:

Accounts Receivable

$575,000

Less: Allowance for Doubtful Accounts

-$33,550

Net Accounts Receivable

$541,450

Part 3 -- Balance Sheet presentation of part 1c

Extract of Balance Sheet

December 31, 2017

Assets:

Accounts Receivable

$575,000

Less: Allowance for Doubtful Accounts

-$34,500

Net Accounts Receivable

$540,500

General Journal

Debit

Credit

Bad Debt Expense

$26,050

Allowance for Doubtful Account

$26,050

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.