Bad Debt Accounting and journal entries
Here is information related to Kettle Moraine Company for 2007.
Total credit sales $1,500,000
Accounts receivable at December 31 440,000
Bad debts written off 31,000
Instructions:
(a) What amount of bad debts expense will Kettle Moraine Company report if it uses the direct write-off method of accounting for bad debts?
Formula
(b) Assume that Kettle Moraine Company decides to estimate its bad debts expense based on 3% of
accounts receivable. What amount of bad debts expense will the company record if Allowance for Doubtful
Accounts has a credit balance of $3,000
Amount X Percentage = Formula
Plus debit balance Amount
Formula
(c) Assume the same facts as in part (b), except that there is a $1,000 debit balance in Allowance for Doubtful
Accounts. What amount of bad debts expense will Kettle Moraine record?
Amount X Percentage = Formula
Plus debit balance Amount
Formula
(d) What is a weakness of the direct write-off method of reporting bad debts expense?
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Solution Summary
The solution calculates bad debts expense for Kettle Moraine Company under differenct bad debt accounting methods.
Bad Debt Accounting and journal entries
See excel where formatting is readable:
Presented below is an aging schedule for Joplin Company.
Customer Total Not Yet Due Number of Days Past Due
1-30 31-60 61-90 Over 90
Adisy $20,000 $9,000 $11,000
Bloom 30,000 $30,000
Cai 50,000 5,000 5,000 $40,000
Dahl 38,000 $38,000
Others 120,000 72,000 35,000 13,000
Total $258,000 $107,000 $49,000 $24,000 $40,000 $38,000
"Estimated percentage
uncollectible" 3% 5% 12% 24% 50%
"Total estimated
bad debts" $37,140 $3,210 $2,450 $2,880 $9,600 $19,000
At December 31, 2007, the unadjusted balance in Allowance for Doubtful Accounts is a credit of $8,000
Instructions:
(a) Journalize and post the adjusting entry for bad debts at December 31, 2007. (Use T accounts.)
Dec 31 Account title Amount
Account title Amount
Text or detail
Bad Debts Expense Allowance for Doubtful Accounts
(b) Journalize and post to the allowance account these 2008 events and transactions:
1. March 1, a $600 customer balance originating in 2007 is judged uncollectible.
Mar 01 Account title Amount
Account title Amount
2. May 1, a check for $600 is received from the customer whose account was written off as
uncollectible on March 1.
May 01 Account title Amount
Account title Amount
May 01 Account title Amount
Account title Amount
(c) Journalize the adjusting entry for bad debts at December 31, 2008, assuming that the unadjusted balance in
Allowance for Doubtful Accounts is a debit of $1,100 and the aging schedule indicates that total estimated
bad debts will be $32,700
Dec 31 Account title Amount
Account title Amount
Text or detail