Question

The Dent Sign Company uses the allowance method in accounting for uncollectible accounts. The company uses income statement approach to estimate uncollectible accounts. Past experience indicates that 1% of net credit sales will eventually be uncollectible. Selected account balances at December 31, 2017, and December 31, 2018, appear below:

​12/31/17​​12/31/18​

​Net Credit Sales​$400,000​$500,000

​Accounts Receivable​75,000​100,000

​Allowance for Doubtful Accounts​5,000​?

Instructions

(a)​Record the following events in 2018.

​Aug.​10​Determined that the account of Ann Koch for $1,000 is uncollectible.

​Sept.​12​Determined that the account of Joe Yates for $4,000 is uncollectible.

​Oct.​10​Received a check for $550 as payment on account from Ann Koch, whose account had previously been written off as uncollectible. She indicated the remainder of her account would be paid in November.

​Nov.​15​Received a check for $450 from Ann Koch as payment on her account.

(b)​Prepare the adjusting journal entry to record the bad debt provision for the year ended December 31, 2018.

(c)​What is the balance of Allowance for Doubtful Accounts at December 31, 2018?

*can i have an explanation for B and C

Answer 1

Solution:
a.
Date	General Journal	Debit	Credit
Aug. 10	Allowance for Doubtful Accounts	1,000
	Accounts Receivable—Ann Koch		1,000
	[Being Accounts Receivable—Ann Koch is written off]
Sept. 12	Allowance for Doubtful Accounts	4,000
	Accounts Receivable—Joe Yates		4,000
	[Being Accounts Receivable—Joe Yates is written off]
Date	General Journal	Debit	Credit
Oct. 10	Accounts Receivable—Ann Koch	1,000
	Allowance for Doubtful Accounts		1,000
	[Being account of Ann Koch reinstated previously written off ]
	Cash	550
	Accounts Receivable—Ann Koch		550
	[Being cash collection from Ann Koch recorded ]
Date	General Journal	Debit	Credit
Nov. 15	Cash	450
	Accounts Receivable—Ann Koch		450
	[Being cash collection from Ann Koch recorded ]
b.
Date	General Journal	Debit	Credit
Dec. 31	Bad Debts Expense	5,000
	Allowance for Doubtful Accounts		5,000
	[Being Bad debt expense recorded based on estimation of uncollectible account]
Working Notes:
	Past experience indicates that 1% of net credit sales will eventually be uncollectible
	Hence, only 1% of Net credit sales of 2018
	Bad Debts Expense = 1% x $500,000 = $5,000
c.	Balance of Allowance for Doubtful Accounts at December 31, 2018		$6,000
Working Notes:
	Computation of balance of Allowance for Doubtful Accounts at December 31, 2018
	Opening balance 31/12/2017	5,000
	Add: Created during 2018	5,000
	Less: Amount written off Joe Yates	-4,000
	Allowance for Doubtful Accounts at December 31, 2018	6,000
Please feel free to ask if anything about above solution in comment section of the question.