163 The Links Company uses the percent of sales method of accounting for uncolle

Question

163 The Links Company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transactions occurred: Links Company determined that the $8,000 account receivable of the Rainier Sept. 7 Company was uncollectible, and wrote it off. Links Company determined that the $3,500 account receivable of the Olympic Oct. 15 Company was uncollectible and wrote it off. Rainier Company paid $6,000 of the amount owed to the Links Company Links Company estimates that 1% of its $1,900,000 of credit Nov.9 Company. Links Company does not expect further collections from the Rainier Dec. 31 sales would be uncollectible. 1. Prepare the general journal entries to record these transactions. 2. If the balance of the allowance for uncollectible accounts was a $4,000 credit on January 1 of the current year, determine the balance of the allowance for uncollectible accounts at December 31 of the current year. Assume that the transactions above are the only transactions affecting the allowance for uncollectible accounts during the year

Explanation / Answer

Date Journal Dr in $ Cr in $ 7-Sep Allowance for Doubtful Debt Dr. 8000 Accounts receivable Cr. 8000 15-Oct Allowance for doubtful debt Dr. 3500 Accounts receivable cr. 3500 9-Nov Accounts receivable Dr. 6000 Allowance for Doubtful Debt Cr. 6000 9-Nov Cash account Dr. 6000 Accounts receivable Cr. 6000 31-Dec Bad debts Expense Dr. 20500 Allowance for doubtfule debts Cr. 20500 Note: Amount to be transferred to Bad debts expense: Closing balance for Allowance for Doubtful debts (1900,000*1%) 19000 Add: Amount uncollectible and written off (8000+3500) 11500 Less: Amount reinstated 6000 24500 Less: balance in Allowance for doubtful debts 4000 Amount ot be transferred to Bad debts expense 20500

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