Entries for adjustments to Allowance for Bad debts
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At December 31, 2005, the trial balance of Larry Falcetto Company contained the following amounts before adjustment.
Debits Credits
Accounts Receivable $350,000
Allowance for Doubtful Accounts $ 1,300
Sales 880,000
Instructions
(a) Prepare the adjusting entry at December 31, 2005, to record bad debts expense under each of the following independent assumptions.
(1) An aging schedule indicates that $17,550 of accounts receivable will be uncollectible.
(2) The company estimates that 2% of sales will be uncollectible.
(b) Repeat part (a) assuming that instead of a credit balance, there is a $1,300 debit balance in Allowance for Doubtful Accounts.
(c) During the next month, January 2006, a $4,500 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off.
(d) Repeat part (c) assuming that Larry Falcetto Company uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.
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Solution Summary
The solution carefully explains how and why the entries need to be made to adjust not only the balance sheet, but the income statement.
Solution Preview
Some notes about the entries:
1. Because there is a balance in the allowance account left over from last year, you only make an entry for the difference to bring the account to the balance you want it to be as of 12-31-05. That procedure ...
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