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JOURNAL ENTRIES FOR UNCOLLECTIBLE ACCOUNTS— ALLOWANCE METHOD Blocker Company estimates its uncollectible accounts based on an analysis of receivables. On December 31, a junior accountant prepared the following aging schedule for the company's $88,000 in outstanding receivables. Estimated Uncollectible Accounts Age Interval Amount % Amount Not due ........................................... 1–30 days past due ........................ 31–60 days past due ...................... 61–90 days past due ...................... Over 90 days past due ................... $58,650 13,220 8,930 4,000 3,200 $88,000 2% 4% 20% 30% 50% $1,173 529 1,786 1,200 1,600 $6,288 The Allowance for Doubtful Accounts currently has a $210 debit balance. 1. 2. Prepare the adjusting entry to record the company's estimate of uncollectible accounts. Prepare the journal entry to write off the following accounts: T. Donaldson .............................................. $ 700 J. Kyle ......................................................... 450 D. Mize ........................................................ 1,000 3. Prepare the journal entry to record receipt of the $450 owed by J. Kyle. 4. Write an answer to the following question: What circumstances would cause the Allowance for Doubtful Accounts to have a debit balance prior to adjustment? JOURNAL ENTRIES FOR UNCOLLECTIBLE ACCOUNTS— ALLOWANCE METHOD Solution 1. Prepare the adjusting entry to record the company's estimate of uncollectible accounts. Uncollectible Accounts Expense .......................... Allowance for Doubtful Accounts ..................... 2. 6,498 6,498 Prepare the journal entry to write off the following accounts: T. Donaldson ............................................ $ 700 J. Kyle ....................................................... 450 D. Mize ...................................................... 1,000 Allowance for Doubtful Accounts ......................... Accounts Receivable—T. Donaldson ................ Accounts Receivable—J. Kyle ........................... Accounts Receivable—D. Mize .......................... 3. 4. 2,150 700 450 1,000 Prepare the journal entry to record receipt of the $450 owed by J. Kyle. Accounts Receivable—J. Kyle .............................. Allowance for Doubtful Accounts ...................... 450 Cash ........................................................................ Accounts Receivable—J. Kyle ........................... 450 450 Write an answer to the following question: What circumstances would cause the Allowance for Doubtful Accounts to have a debit balance prior to adjustment? The actual amount of uncollectible accounts written off in the prior accounting period was greater than the estimate used to record the adjusting entry for bad debts. 450 JOURNAL ENTRIES FOR UNCOLLECTIBLE ACCOUNTS—DIRECT WRITE-OFF METHOD 1. Richard Ellis purchased $500 in merchandise on account, terms n/30. 2. After 6 months, the Richard Ellis account was written off as uncollectible. 3. David Sans purchased $280 worth of merchandise on account, terms n/30. 4. Received notice that David Sans had filed for bankruptcy; therefore, his account was written off. 5. One year later, received $280 from David Sans as payment on his account. JOURNAL ENTRIES FOR UNCOLLECTIBLE ACCOUNTS—DIRECT WRITE-OFF METHOD Solution 1. Richard Ellis purchased $500 in merchandise on account, terms n/30. Accounts Receivable—R. Ellis ...................... 500 Sales ............................................................. 500 2. After 6 months, the Richard Ellis account was written off as uncollectible. Uncollectible Accounts Expense .................. 500 Accounts Receivable—R. Ellis .................. 500 3. David Sans purchased $280 worth of merchandise on account, terms n/30. Accounts Receivable—D. Sans ..................... 280 Sales ............................................................. 280 4. Received notice that David Sans had filed for bankruptcy; therefore, his account was written off. Uncollectible Accounts Expense .................. 280 Accounts Receivable—D. Sans ................. 280 5. One year later, received $280 from David Sans as payment on his account. Accounts Receivable—D. Sans ..................... 280 Uncollectible Accounts Expense .............. Cash ................................................................. 280 Accounts Receivable—D. Sans ................. 280 280