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    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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    https://brainmass.com/business/journal-entries/journal-entries-to-record-allowance-for-doubtful-accounts-181877

    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

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