Question

Question 1

The Kingsmill Furniture Company sells its products, offering 30 days’ credit to its customers. Uncollectible amounts are estimated to be equal to 2% of credit sales. At the end of the year, the allowance for doubtful accounts is adjusted based on an aging of accounts receivable. The company began 2017 with the following balances in its accounts:

Accounts receivable                $305,000

Allowance for doubtful accounts        (25,500)

During 2017, sales on credit were $1,300,000, cash collections from customers were $1,250,000 and actual write-offs of accounts were $25,000. An aging of accounts receivable at the end of 2017 indicates a required allowance of $30,000.

Required:

1. Determine the balances in accounts receivable and allowance for doubtful accounts at the end of 2017.

2. Determine the bad debt expense for 2017.

3. Prepare journal entries to accrue bad debts, write-off the receivables, and the year-end adjusting entry required to adjust the allowance for doubtful accounts to the required allowance of $30,000. Include explanations for each journal entry.

Answer 1

1.

Beginning accounts receivable	$                            305,000
Add: Credit sales	$                        1,300,000
Less: Cash collected	$                      (1,250,000)
Less: Write off	$                            (25,000)
Ending Accounts receivable balance	$                          330,000
Ending allowance for doubtful accounts balance	$                            30,000

2.

Ending allowance for doubtful accounts balance	$    30,000
Less: Beginning allowance for doubtful accounts balance	$ (25,500)
Add: Write off	$    25,000
Baddebt expenses	$    29,500

Account title and explanation	Debit	Credit
Allowance for doubtful accounts	$   25,000
Accounts receivable		$   25,000
(To record write off of accounts receivable)
Baddebt expenses	$   29,500
Allowance for doubtful accounts		$   29,500
(To record baddebt expenses)

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