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Question 7 (of ) E8-3 Recording, Reporting, and Evaluating a Bad Debt Estimate U

ID: 2570613 • Letter: Q

Question



Question 7 (of ) E8-3 Recording, Reporting, and Evaluating a Bad Debt Estimate Using the Percent During the year ended December 31, 2015, Kelly's Camera Shop had sales revenue of $170,000, of which $85,000 was on credit. At the start of 2015, Accounts Receivable showed a $10,000 debit balance and the Allowance for Doubtful Accounts showed a $600 credit balance. Collections of accounts receivable during 2015 amounted to $68,000 Data during 2015 follow a. On December 10, a customer balance of $1,500 from a prior year was determined to be uncollectible, so it was written off b. On Decembor 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year Required 1. Give the required journal entries for the two events in December. (If no entry is required for a transactionlevent, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet MacBook Pro F1 F2 860 F4 F3 FS

Explanation / Answer

a. Entry to record writing off of customer balance of $1,500

b. To record the bad debt estimate of 2% of credit sale.

The credit sale during the year was $85,000. The bad debts expense will be $1,700.00

The new balance in allowance for doubtful accounts will be

Beginning balance $600 Cr

Written off during the year $1,500 Dr

Provison made st te end of the year $1,700 Cr

Ending balance $800 Cr

2. Balance in Accounts receivables account :

Beginning balance $10,000

Add: Credit sales during the year $85,000

Less: Collections made during the year $68,000

Less: Written off during the year $1,500

Ending Balance $25,500

3. No.

On the data available, the 2% rate does not appear reasonable. This is because we can see that the company was unable to collect $1,500 for almost one year . And the collection was only $68,000 during the whole year whereas the total outstanding was $95,000 (including the opening balance of $10,000) a collection rate of 72%.

The company has to increase the provisioning based on the ageing of the debt instead of on the basis of sales.

Date Account Debit Credit Dec.10, 2015 Allwance for doubtful accounts $1,500 Accounts receivable $1,500
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