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Chapter 7: Question: E7-7 (page 366)

(Recording Bad Debts) Duncan Company reports the following financial information before adjustments.

Debit

Credit

Accounts receivables

\(100,000

Allowance for doubtful accounts

\)2,000

Sales revenue (All on credit)

900,000

Sales return and allowance

50,000

Instructions

Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.

Short Answer

Expert verified

The total debit and credit side of the journal is$9,500.

Step by step solution

01

Definition of Sales return and Allowances

Sales return and allowance account is a contra-revenue account reporting defective goods or defective orders returned by a customer.

02

Journal Entries

Date

Accounts and explanation

Debit $

Credit $

a

Bad debt expenses

$3,000

Allowance for doubtful accounts

$3,000

b

Bad debt expenses

$6,500

Allowance for doubtful accounts

$6,500

Working note:

1. Calculation of allowance:Allowancefordoubtfulaccounts=Accountsreceivables脳Estimatedbaddebtpercentage-Creditbalanceofallowance=$100,000脳5%-2000=$3,000


2. Calculation of allowance:


Allowancefordoubtfulaccounts=Accountsreceivables脳Estimatedbaddebtpercentage+Debitbalanceofallowance=$10,000脳5%+1500=$6,500

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Most popular questions from this chapter

(Bad-Debt Reporting) Presented below is information related to the Accounts Receivable accounts of Gulistan Inc. during the current year 2017.

1. An aging schedule of the accounts receivable as of December 31, 2017, is as follows.

Age

Net Debit Balance

% to be applied after correction is made

Under 60-days

\(172,342

1%

60-90 days

136,490

3%

91-120 days

39,924

6%

Over 120 days

23,644

\)3,700 definitely uncollectible; estimated remainder uncollectible is 25%

\(372,400

*The \)3,240 write-off of receivables is related to the 91-to-120 day category.

2. The Accounts Receivable control account has a debit balance of \(372,400 on December 31, 2017.

3. Two entries were made in the Bad Debt Expense account during the year: (1) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (2) a credit for \)3,240 on November 3, 2017, and a debit to Allowance for Doubtful Accounts because of a bankruptcy.

4. Allowance for Doubtful Accounts is as follows for 2017.

Allowance for Doubtful Accounts

Nov 3

Uncollectible accounts written off

3,240

Jan 1

Beginning balance

8,750

Dec 31

5% of \(372,400

18,620

5. A credit balance exists in Accounts Receivable (60鈥�90 days) of \)4,840, which represents an advance on a sales contract.

Instructions

Assuming that the books have not been closed for 2017, make the necessary correcting entries.

Wood Incorporated factored $150,000 of accounts receivable with Engram Factors Inc. on a without-recourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram.

Springsteen Inc. reported in a recent annual report 鈥淩estricted cash for debt redemption.鈥� What section of the balance sheet would report this item?

The following are a series of unrelated situations. 1. Halen Company鈥檚 unadjusted trial balance at December 31, 2017, included the following accounts.

Debit \(

Credit \)

Accounts receivables

\(53,000

Allowance for doubtful accounts

4,000

Net sales

\)1,200,000

Halen Company estimates its bad debt expense to be 7% of gross accounts receivable. Determine its bad debt expense for 2017.

2. An analysis and aging of Stuart Corp. accounts receivable at December 31, 2017, disclosed the following.

Amounts estimated to be uncollectible

\(180,000

Accounts receivables

1,750,000

Allowance for doubtful accounts (per books)

125,000

What is the net realizable value of Stuart鈥檚 receivables at December 31, 2017?

3. Shore Co. provides for doubtful accounts based on 4% of gross accounts receivable, The following data are available for 2017.

Credit sales during 2017

\)4,400,000

Bad debt expenses

57,000

Allowance for doubtful accounts 1/1/17

17,000

Collection of accounts written off in prior years (Customer credit was re-established)

8,000

Customer accounts written off as uncollectible during 2017

30,000

What is the balance in Allowance for Doubtful Accounts at December 31, 2017?

4. At the end of its first year of operations, December 31, 2017, Darden Inc. reported the following information.

Accounts receivable, net of allowance for doubtful accounts

\(950,000

Customer accounts written off as uncollectible during 2017

24,000

Bad debt expense for 2017

84,000

What should be the balance in accounts receivable at December 31, 2017, before subtracting the allowance for doubtful accounts?

5. The following accounts were taken from Bullock Inc.鈥檚 trial balance at December 31, 2017.

Debit

Credit

Net credit sales

\)750,000

Allowance for doubtful accounts

$14,000

Accounts receivables

310,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2017.

Instructions

Answer the questions relating to each of the five independent situations as requested.

(Notes Receivable Journal Entries) On December 31, 2017, Oakbrook Inc. rendered services to Beghun Corporation at an agreed price of \(102,049, accepting \)40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.

Instructions

Prepare the entries that would be recorded by Oakbrook Inc. for the sale and the receipts and interest on the following dates (prepare an amortization schedule). (Assume that the effective-interest method is used for amortization purposes.)

(a) December 31, 2017.

(b) December 31, 2018.

(c) December 31, 2019.

(d) December 31, 2020.

(e) December 31, 2021.

See all solutions

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