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Chapter 8: Q3TI (page 449)

Johnson Company uses the allowance method to account for uncollectible receivables. On September 2, Johnson wrote off a

\(14,000 account receivable from customer J. Mraz. On December 12, Johnson unexpectedly received full payment from Mraz on

the previously written off account. Johnson records an adjusting entry for bad debts expense of \)800 on December 31.

9. Journalize Johnson鈥檚 write-off of the uncollectible receivable.

10. Journalize Johnson鈥檚 collection of the previously written off receivable.

11. Journalize Johnson鈥檚 adjustment for bad debts expense.

Short Answer

Expert verified

(9) Allowance for bad debts account will be debited and accounts receivable-J.Miraz will be credited by $14,000 respectively.

(10) Firstly, Accounts receivable- J. Mraz will be debited and allowance for Bad Debts will be credited by $14,800, respectively. Then, cash account will be debited and accounts Receivable- J. Mraz will be credited by $14,800, respectively.

(11) Bad debt expense will be debited and allowance for bad debts will be credited by $800, respectively.

Step by step solution

01

Definition of bad debts

Bad debt represents the amount owed by the customers that remains uncollectible.

02

Journal entry for written-off

Date

Particulars

Debit

Credit

September 2

Allowance for Bad Debts

$14,000

Accounts Receivable- J. Mraz

$14,000

(Write-off uncollectible account)

03

Journal entry for reinstatement and collection

December 12

Accounts Receivable- J. Mraz

$14,000

Allowance for Bad Debts

$14,000

(Reinstated previously written off bad debts)

December 12

Cash

$14,000

Accounts Receivable- J. Mraz

$14,000

(Collected cash on account)

04

Journal entry for adjustment of bad debts expense

Date

Particulars

Debit

Credit

December 31

Bad Debts Expense

$800

Allowance for Bad Debts

$800

(Adjustment entry for bad debts)

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Most popular questions from this chapter

Lovett Company reported the following selected items at March 31, 2018 (last year鈥檚鈥�2017鈥攁mounts also given as needed):

Accounts Payable \( 128,000 Accounts Receivable, net:

Cash 104,000 March 31, 2018 \) 108,000

Merchandise Inventory: March 31, 2017 68,000

March 31, 2018 116,000 Cost of Goods Sold 460,000

March 31, 2017 80,000 Short-term Investments 56,000

Net Credit Sales Revenue 1,168,000 Other Current Assets 48,000

Long-term Assets 168,000 Other Current Liabilities 72,000

Long-term Liabilities 52,000

14. Compute Lovett鈥檚 (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days鈥� sales in receivables as of

March 31, 2018.

Accounting for uncollectible accounts using the allowance method

This problem continues the Canyon Canoe Company situation from Chapter 7.

Canyon Canoe Company has experienced rapid growth in its first few months of operations and has had a significant increase in customers renting canoes and purchasing T-shirts. Many of these customers are asking for credit terms. Amber and Zack Wilson, stockholders and company managers, have decided it is time to review their business transactions and update some of their business practices. Their first step is to make decisions about handling accounts receivable.

So far, year-to-date credit sales have been \(15,500. A review of outstanding

receivables resulted in the following aging schedule:


Age of Accounts as of June 30, 2019

Customer name

1-30 days

31-60 days

61-90 days

Over 90 days

Total balance

Canyon

\)250

\(250

Crazy trees

\)200

\(150

\)350

Early start Daycare

\(500

Lakefront Pavilion

\)575

\(500

\)575

Outdoor Center

\(300

\)300

Rivers Canoe Club

\(350

\)350

Sport Shirts

\(450

\)120

\(570

Zack鈥檚 Marina

\)75

\(75

\)225

Totals

\(1,900

\)345

\(375

\)500

$3,120

Requirements

1. The company wants to use the allowance method to estimate bad debts. Determine the estimated bad debts expense under the following methods at June 30, 2019. Assume a zero-beginning balance for Allowance for Bad Debts. Round to the nearest dollar.

a. Percent-of-sales method, assuming 4.5% of credit sales will not be collected.

b. Percent-of-receivables method, assuming 22.5% of receivables will not be

collected.

c. Aging-of-receivables method, assuming 5% of invoices 1鈥�30 days will not be

collected, 20% of invoices 31鈥�60 days, 40% of invoices 61鈥�90 days, and 75% of

invoices over 90 days.

2. Journalize the entry at June 30, 2019, to adjust for bad debts expense using the percent-of-sales method.

3. Journalize the entry at June 30, 2019, to record the write-off of the Early Start Daycare invoice.

4. At June 30, 2019, open T-accounts for Accounts Receivable and Allowance for Bad Debts before Requirements 2 and 3. Post entries from Requirements 2 and 3 to those accounts. Assume a zero beginning balance for Allowance for Bad Debts.

5. Show how Canyon Canoe Company will report net accounts receivable on the balance sheet on June 30, 2019.

What occurs when a business pledges its receivables?

What type of account must the sum of all subsidiary accounts be equal to?

What does the accounts receivable turnover ratio measure, and how is it calculated?
See all solutions

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