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Chapter 8: Q5SE (page 466)

Applying the allowance method to account for uncollectibles

The Accounts Receivable balance and Allowance for Bad Debts for Signature Lamp

Company at December 31, 2017, was \(10,800 and \)2,000 (credit balance), respectively.

During 2018, Signature Lamp Company completed the following transactions:

a. Sales revenue on account, \(273,400 (ignore Cost of Goods Sold).

b. Collections on account, \)223,000.

c. Write-offs of uncollectibles, \(5,900.

d. Bad debts expense of \)5,200 was recorded

Requirements

1. Journalize Signature Lamp Company鈥檚 transactions for 2018 assuming Signature Lamp Company uses the allowance method.

2. Post the transactions to the Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense T-accounts, and determine the ending balance of each account.

3. Show how accounts receivable would be reported on the balance sheet at December 31, 2018.

Short Answer

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Answer

Step by step solution

01

Requirement 1: Journalize the transactionsof Signature Lamp

Date

Account and explanation

Debit

Credit

2018

Accounts receivable

Sales Revenue

(Sold goods on account)

$ 273,400

$ 273,400

Cash

Sales Revenue

(Sold goods on account)

$ 223,000

$223,000

Allowance for Bad Debts

Accounts Receivable

(Wrote off an uncollectible account)

$ 5,900

$ 5,900

Bad Debts

Allowance for Bad Debts

(Recorded bad debts expense for the period.)

$5,200

$5,200

02

Requirement2: Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense T-accounts

Accounts Receivable

Bal. $ 10,800

Collections $ 223,000

Net credit sales$ 273,400

Uncollectable $ 5,900

Bal. $ 55,300

Allowance for Bad Debts

Write off $ 5,900

Bal. $ 2,000

Provision $5,200

Bal. $ 1,300

Bad Debts

$5,200

03

Requirement3: report net accounts receivable on its December 31, 2018

笔补谤迟颈肠耻濒补谤鈥檚

As at December, 2018

Accounts Receivable

Less: Allowance for Bad Debts

$ 55,300

$ (1,300)

Net Realizable Value

$54,000

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Most popular questions from this chapter

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.

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.

Recording credit sales and collections

Steller Corporation had the following transactions in June:

Jun .1

Sold merchandise inventory on account to Carter Company, \(1,575.

6

Sold merchandise inventory for cash, \)550

12

Received cash from Carter Company in full settlement of its accounts receivable

20

Sold merchandise inventory on account to Iris Company, \(765

22

Sold merchandise inventory on account to Driver Company, \)230

28

Received cash from Iris Company in partial settlement of its accounts receivable, \(300

Requirements

1. Journalize the transactions. Ignore Cost of Goods Sold. Omit explanations.

2. Post the transactions to the general ledger and the accounts receivable subsidiary

ledger. Assume all beginning balances are \)0.

3. Verify the ending balance in the control Accounts Receivable equals the sum of the

balances in the subsidiary ledger.

Accounting for uncollectible accounts using the allowance (percent of-sales) and direct write-off methods and reporting receivables on thebalance sheet

On August 31, 2018, Forget-Me-Not Floral Supply had a \(140,000 debit balance inAccounts Receivable and a \)5,600 credit balance in Allowance for Bad Debts. DuringSeptember, Forget-Me-Not made the following transactions:

鈥� Sales on account, \(530,000. Ignore Cost of Goods Sold.

鈥� Collections on account, \)573,000.

鈥� Write-offs of uncollectible receivables, $6,000.

Requirements

1. Journalize all September entries using the allowance method. Bad debts expense wasestimated at 2% of credit sales. Show all September activity in Accounts Receivable,Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts).

2. Using the same facts, assume that Forget-Me-Not used the direct write-off methodto account for uncollectible receivables. Journalize all September entries using thedirect write-off method. Post to Accounts Receivable and Bad Debts Expense, andshow their balances at September 30, 2018.

3. What amount of Bad Debts Expense would Forget-Me-Not report on its Septemberincome statement under each of the two methods? Which amount better

matches expense with revenue? Give your reason.

4. What amount of net accounts receivable would Forget-Me-Not report on its September

30, 2018, balance sheet under each of the two methods? Which amount ismore realistic? Give your reason

What do the days鈥� sales in receivables indicate, and how is it calculated?
See all solutions

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