At the beginning of 2021, Brad’s Heating & Air (BHA) has a balance of $25,200 in accounts receivable.

Exercise 5-13A Compare the allowance method and the direct write-off method (LO5-6)

At the beginning of 2021, Brad’s Heating & Air (BHA) has a balance of $25,200 in accounts receivable. Because BHA is a privately owned company, the company has used only the direct write-off method to account for uncollectible accounts. However, at the end of 2021, BHA wishes to obtain a loan at the local bank, which requires the preparation of proper financial statements. This means that BHA now will need to use the allowance method. The following transactions occur during 2021 and 2022.

During 2021, install air conditioning systems on account, $182,000.
During 2021, collect $177,000 from customers on account.
At the end of 2021, estimate that uncollectible accounts total 10% of ending accounts receivable.
In 2022, customers’ accounts totaling $7,200 are written off as uncollectible.

Exercise 5-13A Part 1

Required:

1. Record each transaction using the allowance method. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Solutions

Expert Solution

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Brad’s Heating & Air (BHA)
For 2021	Amount $
Opening Accounts Receivable	25,200.00
Add: Services provided	182,000.00
Less: Cash received	177,000.00
Ending Accounts Receivable (Gross)	30,200.00
Less: Uncollectible amount at 10%	3,020.00
Ending Accounts Receivable (Net)	27,180.00

Journal Entry
Date	Account	Debit $	Credit $
Year 2021	Accounts Receivable	182,000.00
	Service Revenue		182,000.00

Year 2021	Cash	177,000.00
	Accounts Receivable		177,000.00

Year 2021	Bad Debt expense	3,020.00
	Allowance for doubtful account		3,020.00

Year 2022	Allowance for doubtful account	7,200.00
	Accounts Receivable		7,200.00

ekkarill92 answered 2 years ago

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