On December 31, 2009, Colonial Corporation had the following account balances re

Question

On December 31, 2009, Colonial Corporation had the following account balances related to credit sales and receivables prior to recording adjusting entries:

Accounts receivable 25000
allowance for doubtful accounts 200
sales revenue (all credit sales) 400000

Required:
Present the necessary year-end adjusting entry related to uncollectible accounts for each of the following independent assumptions:
A. An aging of accounts receivable is completed. It is estimated that $2,150 of the receivables outstanding at year-end will be uncollectible.


B. It is estimated that 1% of credit sales for the year will prove to be uncollectible.


C. Assume the same information presented above except that prior to adjustment, the Allowance for Doubtful Accounts had a debit balance of $200 rather than a credit balance of $200.

Explanation / Answer

A. In this situation you would have to increase the allowance account that so it equals 2150. 2150-200 = 1950. Debit bad debt expense for 1950 Credit Allowance for doubtful accounts for 1950 B. 400,000 * 1% = 4,000. So in this case, the entry is Debit bad debt expense for 4000 Credit allowance for doubtful accounts for 4000 C. In this case, the answer for B would be the same, but answer for A would be: Debit bad debt expense for 2350 Credit allowance for doubtful accounts for 2350 Because it would take a credit of 2350 to bring the balance up to 2150.

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