The ledger of Costello Company at the end of the current year shows Accounts Rec

Question

The ledger of Costello Company at the end of the current year shows Accounts Receivable $130,000, Sales Revenue $849,000, and Sales Returns and Allowances $27,000. If Costello uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Costello determines that L. Dole’s $1,700 balance is uncollectible.

2) If Allowance for Doubtful Accounts has a credit balance of $2,300 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 3% of net sales, and (2) 10% of accounts receivable

3) If Allowance for Doubtful Accounts has a debit balance of $230 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 3% of net sales and (2) 7% of accounts receivable.

Explanation / Answer

Net Sales (Total Sales- Sales Return ) = (849,000-27,000) = $ 822,000 Date Accounts Title Dr in $ Cr in $ Req A. 31-Dec Bad debts expense Dr. 1700 Accounts receivable Cr. 1700 Req B. (1) Dec 31 Bad debts expense Dr. 22360 Allowance for Doubtful Debts Cr. 22360 (3% of net sales i.e. 822,000 Less Balance in Allowance i.e. 2300) (2) Dec 31 Bad debts expense Dr. 10700 Allowance for Doubtful Debts Cr. 10700 (10% of Accounts Recievable i.e. 130,000 Less balance in Allowance i.e. 2300) Req C. (1) Dec 31 Bad debts expense Dr. 24890 Allowance for Doubtful Debts Cr. 24890 (3% of net sales i.e. 822,000 Add Balance in Allowance i.e. 230) (2) Dec 31 Bad debts expense Dr. 9330 Allowance for Doubtful Debts Cr. 9330 (7% of Accounts Recievable i.e. 130,000 Add balance in Allowance i.e. 230)

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