Question

On August 31​,2018​, orchard Floral Supply had a $145,000

debit balance in Accounts Receivable and a $5,800

credit balance in Allowance for Bad Debts. During September​, Orchard made:

times•Sales on​ account, $580,000.

Ignore Cost of Goods Sold.

times• Collections on​ account,

$613,000.

times• Write-offs of uncollectible​ receivables, $5,500.

Read the requirements

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. Requirement 1. Journalize all

September entries using the allowance method. Bad Debts Expense was estimated at

33​%of credit sales. Show all September activity in Accounts​ Receivable, Allowance for Bad​ Debts, and Bad Debts Expense​ (post to these​ T-accounts). Begin by journalizing all

September entries using the allowance method. ​(Record debits​ first, then credits. Select the explanation on the last line of the journal entry​table.)Sales on​ account, $580,000.

Ignore Cost of Goods Sold.

Date			Accounts and Explanation	Debit	Credit
Sep. 30

Collections on​ account, $613,000.

Date			Accounts and Explanation	Debit	Credit
Sep. 30

​Write-offs of uncollectible​ receivables, $5,500.

Date			Accounts and Explanation	Debit	Credit
Sep. 30

Journalize the Bad Debts Expense for September

using the allowance method. Bad Debts Expense was estimated at

33​% of credit sales.

Date			Accounts and Explanation	Debit	Credit
Sep. 30

Post all September entries in the appropriate​ T-accounts and calculate the ending balance in each account. ​(Enter the beginning balance if applicable. Then post the transactions and calculate the account balance at September 30​, 2018​.)

Accounts Receivable					Allowance for Bad Debts
Bad Debt Expense

Requirement 2. Using the same​ facts, assume that Orchard

used the direct​ write-off method to account for uncollectible receivables. Journalize all September

entries using the direct​ write-off method. Post to Accounts Receivable and Bad Debts​ Expense, and show their balances at September 30​, 2018.

Begin by journalizing all September entries using the direct​ write-off method. ​(Record debits​ first, then credits. Select the explanation on the last line of the journal entry​ table.)Sales on​ account, $580,000.

Ignore Cost of Goods Sold.

Date			Accounts and Explanation	Debit	Credit
Sep. 30

Collections on​ account, $613,000.

Date			Accounts and Explanation	Debit	Credit
Sep. 30

​Write-offs of uncollectible​ receivables, $5,500.

Date			Accounts and Explanation	Debit	Credit
Sep. 30

Post to Accounts Receivable and Bad Debts Expense and show their balances at September 30​, 2018.

​(Enter the beginning balance if applicable. Then post the transactions and calculate the account balance at September 30​, 2018​.)

Accounts Receivable					Bad Debt Expense

Requirement 3. What amount of Bad Debts Expense would Orchard

report on its September income statement under each of the two​ methods? Which amount better matches expense with​ revenue? Give your reason. Enter the amount of bad debt expense Orchard would report on its September 30​, 2018

income statement under each of the two methods.

Income Statement (Partial)	Allowance Method	Direct Write-Off Method
Bad Debts Expense

Bad Debts Expense under the

▼

allowance method

direct write-off method

better matches expense with revenue because the expense is recorded

▼

in the same period sales are made

when the exact amount of bad debt is known

when the receivable is collected

.Requirement 4. What amount of net accounts receivable would Orchard

report on its September 30​, 2018​, balance sheet under each of the two​ methods? Which amount is more​ realistic? Give your reason. Enter the amount of net accounts receivable Orchard would report on its September balance sheet under each of the two methods. ​(Complete all answer boxes. For accounts with a​ $0 balance, make sure to enter​ "0" in the appropriate​ column.)

Balance Sheet (Partial):	Allowance Method		Direct Write-Off Method
Accounts receivable
Less: Allowance for Bad Debts

Net accounts receivable under the

▼

allowance method

direct write-off method

is more realistic because it shows the amount of the receivables that the company

▼

expects to collect

expects to write-off

wants to collect

wants to sell.

Answer 1

1.

Date	Accounts and Explanation	Debit	Credit
Sep. 30	Accounts receivable	580000
	Sales revenue		580000
	(To record sales on account)
Sep. 30	Cash	613000
	Accounts receivable		613000
	(To record collections on account)
Sep. 30	Allowance for bad debts	5500
	Accounts receivable		5500
	(To record write-offs of uncollectible receivables)
Sep. 30	Bad debts expense (33% x $580000)	191400
	Allowance for bad debts		191400
	(To record bad debts expense for September)

Accounts Receivable					Allowance for Bad Debts
Beg. Bal.	145000				Beg. Bal.		5800
Sep. 30	580000	613000	Sep. 30		Sep. 30	5500	191400	Sep. 30
		5500	Sep. 30
End. Bal.		106500			End. Bal.		191700
Bad Debt Expense
Sep. 30	191400
End. Bal.	191400

2.

Date	Accounts and Explanation	Debit	Credit
Sep. 30	Accounts receivable	580000
	Sales revenue		580000
	(To record sales on account)
Sep. 30	Cash	613000
	Accounts receivable		613000
	(To record collections on account)
Sep. 30	Bad debts expense	5500
	Accounts receivable		5500
	(To record write-offs of uncollectible receivables)

Accounts Receivable					Bad Debt Expense
Beg. Bal.	145000				Sep. 30	5500
Sep. 30	580000	613000	Sep. 30
		5500	Sep. 30
End. Bal.		106500			End. Bal.	5500

3.

Income Statement (Partial)	Allowance Method	Direct Write-Off Method
Bad Debts Expense	$191,400	$5,500

Bad debts expense undet the allowance method better matches expense with revenue because the expense is recorded in the same period sales are made.

4.

Balance Sheet (Partial)	Allowance Method	Direct Write-Off Method
Accounts receivable	$106,500	$106,500
Less: Allowance for bad debts	$191,700	$0

Net accounts receivable under the allowance method is more realistic because it shows the amount of the receivables that the company expects to collect.