Question

. At December 31, 2018, Garvey Company reported this information on its balance sheet.

               

         Accounts Receivable                             $ 960,000

            Less: Allowance for Doubtful Accounts                       78,000

    During 2019, the company had the following transactions related to receivables.

            1. Sales on account                                                          $3,600,000

            2. Sales returns and allowances                                             50,000

            3. Collection of account receivables                               3,100,000

            4. Write-offs of account receivable deemed uncollectible                   92,000

            5. Recovery of bad debts previously written off as uncollectible       28,000      

             

Instructions:

(a)  Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of account receivables. (Omit cost of goods sold entries)

(b)  Enter the January 1, 2019 balance in the Account Receivables and Allowances for Doubtful Accounts, post the journal entries during 2019 to the two accounts (use T accounts), and determine the balances before adjustment.

(c)  Prepare the journal entry to record bad debts expense for 2019, assuming that aging the account receivable indicate that expected bad debts are $109,000.

Answer 1

(a)	Transaction	Account Titles and Explanation	Debit	Credit		(b)	Accounts Receivable
	1	Accounts Receivable	$3,600,000				Bal.	960,000	(2)	50,000
		Sales Revenue		$3,600,000			(1)	3,600,000	(3)	3,100,000
							(5)	28,000	(4)	92,000
	2	Sales Returns and Allowance	$50,000						(5)	28,000
		Accounts Receivable		$50,000			Bal.	1,318,000
	3	Cash	$3,100,000				Allowances for Doubtful Accounts
		Accounts Receivable		$3,100,000			(4)	92,000	Bal.	78,000
									(5)	28,000
	4	Allowances for Doubtful Accounts	$92,000						Bal.	14,000
		Accounts Receivable		$92,000
	5	Accounts Receivable	$28,000
		Allowances for Doubtful Accounts		$28,000
		Cash	$28,000
		Accounts Receivable		$28,000
(c)		Account Titles and Explanation	Debit	Credit
		Bad Debts Expense	$95,000
		Allowances for Doubtful Accounts		$95,000
		(109,000 - 14,000)