Question

During 2014, Robby’s Camera Shop had sales revenue of $158,000, of which $74,000 was on credit. At the start of 2014, Accounts Receivable showed a $25,000 debit balance, and the Allowance for Doubtful Accounts showed a $900 credit balance. Collections of accounts receivable during 2014 amounted to $59,000.

Data during 2014 follows:

a.	On December 31, 2014, an Account Receivable (J. Doe) of $1,300 from a prior year was determined to be uncollectible; therefore, it was written off immediately as a bad debt.
b.	On December 31, 2014, on the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt losses on 1.5 percent of credit sales for the year.

Required:
1.	Prepare the required journal entries for the two items on December 31, 2014 (end of the accounting period). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2.	Show how the amounts related to Accounts receivable and Bad debt expense would be reported on the income statement and balance sheet for 2014. Disregard income tax considerations. (Amounts to be deducted should be indicated by a minus sign.)

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Answer 1

In the books of Robby's Camera Shop
Journal Entries
Date	Particulars	Debit	Credit
31-12-2014	Bad debts written off A/c	$1,300
	To Accounts Receivable A/c		$1,300
	(Being irrecoverable amount from J. Doe written off)
31-12-2014	Accounts Receivable A/c	$1,110
	[$74000X1.5%]
	To Allowance for Doubtful Accounts		$1,110
	(Being provision for bad debts@ 1.5% of Credit sales)
Calculation of balance of Account Receivables Account to be reported in Balance Sheet
	Particulars	Amount
	Accounts Receivable as on 01-01-2014	$25,000
	Less;Allowance for Doubtful accounts as on 31-12-2014	-$1,110
	Add:Allowance for Doubtful accounts as on 01-01-2014	$900
	Add:Credit Sales during the year	$74,000
	Less:Collection during the period	-$59,000
	Less:Bad debts Written Off	-$1,300
	Balance to be shown in Balance sheet of 2014	$38,490
Calculation of amount of Bad Debts to be reported in Income statement
	Particulars	Amount
	Bad debts written off	$1,300
	Add;Allowance for Doubtful accounts as on 31-12-2014	$1,110
	Less:Allowance for Doubtful accounts as on 01-01-2014	-$900
	Balance to be shown in Income Statement	$1,510