Share
Explore BrainMass

Journal Entries to Record Allowance for Doubtful Accounts

The ledger of Elburn Company at the end of the current year shows Accounts Receivable $110,000, Sales $840,000, and Sales Returns and Allowances $28,000.

Instructions

(a) If Elburn uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Elburn determines that Copp's $1,400 balance is uncollectible.

(b) If Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable.

(c) If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.

Solution Preview

When Bad Debts are estimated as a percentage of Sales:

Net Sales = $840,000 - $28,000 = $812,000

To estimate Bad Debts:

1) Multiply the amount of net sales by the percentage ($812,000 x 0.01) = $8,120

The entry to record that estimation would be:

Bad Debts Expense $8,120
Allowance for Doubtful Accounts $8,120

After adjustment, since the Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance, ...

Solution Summary

The solution includes a Word file and an Excel sheet that shows (with explanation) the calculation of bad debts expense under the percentage of sales method as well as the allowance method.

$2.19