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Chapter 8: 8SE (page 467)

Applying the allowance method (aging-of-receivables) to account for Uncollectibles Surf and Sun had the following balances at December 31, 2018, before the year-end adjustments:

Accounts Receivable

81,000

Allowance for Bad Debts

Bal. \( 2,063

The aging of accounts receivable yields the following data:

Age of Accounts Receivable

0鈥�60 Days

Over 60 Days

Total Receivables

Accounts Receivable

\) 78,000

\( 3,000

\) 81,000

Estimated percent uncollectible

*2%

* 23%

Requirements

1. Journalize Surf and Sun鈥檚 entry to record bad debts expense for 2018 using the aging-of-receivables method.

2. Prepare a T-account to compute the ending balance of Allowance for Bad Debts.

Short Answer

Expert verified

(1) Bad debts will be debited, and allowance for bad debts will be credited by $187, respectively.

(2) Ending balance for allowance for bad debts equals $2,250.

Step by step solution

01

Definition of Aging-of-receivables:

Aging-of-receivables method computes bad debts expense by applying a different percentage for each aging category of accounts receivable.

02

Journalize the transactions of Lake

BadDebtsExpense=Uncollectibleof0-60Days+Uncollectibleofover60days-UnadjustedBalance=$78,200脳2%+$3,000脳23%-$2,063=2,250-$2,063=$187

Date

Account and explanation

Debit

Credit

2018

Bad Debts

$187

Allowance for Bad Debts

$187

(Recording of bad debts expense for the period)

03

T-account of the ending balance of Allowance for Bad Debts

Allowance for Bad Debts

$2,063

Beg. Balance

$187

Adj.

$ 2,250

End. Balance

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Most popular questions from this chapter

Applying the direct write-off method to account for uncollectibles

Shawna Valley is an attorney in Los Angeles. Valley uses the direct write-off method to account for uncollectible receivables.

At April 30, 2018, Valley鈥檚 accounts receivable totaled \(19,000. During May, she earned revenue of \)22,000 on account and collected \(15,000 on account. She also wrote off uncollectible receivables of \)1,100 on May 31, 2018.

Requirements

1. Use the direct write-off method to journalize Valley鈥檚 write-off of the uncollectible receivables.

2. What is Valley鈥檚 balance of Accounts Receivable at May 31, 2018?

P8-38B Accounting for uncollectible accounts (aging-of-receivables method),

notes receivable, and accrued interest revenue

Relax Recliner Chairs completed the following selected transactions:

2018

Jul. 1 Sold merchandise inventory to Go-Mart, receiving a \(43,000, nine-month,

16% note. Ignore Cost of Goods Sold.

Oct. 31 Recorded cash sales for the period of \)23,000. Ignore Cost of Goods Sold.

Dec. 31 Made an adjusting entry to accrue interest on the Go-Mart note.

31 Made an adjusting entry to record bad debts expense based on an aging

of accounts receivable. The aging schedule shows that \(14,900 of accounts

receivable will not be collected. Prior to this adjustment, the credit balance

in Allowance for Bad Debts is \)10,700.

2019

Apr. 1 Collected the maturity value of the Go-Mart note.

Jun. 23 Sold merchandise inventory to Allure, Corp., receiving a 60-day, 6% note for

\(7,000. Ignore Cost of Goods Sold.

Aug. 22 Allure, Corp. dishonored its note at maturity; the business converted the

maturity value of the note to an account receivable.

Nov. 16 Loaned \)20,000 cash to Tench, Inc., receiving a 90-day, 8% note.

Dec. 5 Collected in full on account from Allure, Corp.

31 Accrued the interest on the Tench, Inc. note.

Record the transactions in the journal of Relax Recliner Chairs. Explanations are not

required. (Round to the nearest dollar.)

Question: On June 6, Lakeland Bank & Trust lent $80,000 to Stephan Stow on a 30-day, 9% note.

Requirements

1. Journalize for Lakeland the lending of the money on June 6.

2. Journalize the collection of the principal and interest at maturity. Specify the date Round to the nearest dollar

When is bad debts expense recorded when using the allowance method?

What is the expense account associated with the cost of uncollectible receivables called?
See all solutions

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