Journal Entries to Record Allowance for Doubtful Accounts
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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.
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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.
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, ...
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