Question

ALL of the transactions/questions in this section are related to each other, i.e. if one transaction decreases Allowance for Doubtful Accounts the balance will change for the next question. Starting Information: On July 31, 2019, the company's end-year, Diamond Drills had the account balances as follows: Accounts Receivable $340 00 (DR) Allowance for Doubtful Accounts 5 200 (CR)

a. Diamond Drills' credit department determined that $5 900 should be written off. Record the transaction to do this.

b. Diamond Drills' credit department has also determined that 95% of total accounts receivable will be collected. What should be the NEW balance in Allowance for Doubtful Accounts? (HINT: the previous transaction may have affected the account balances given)

c. Prepare the necessary entry for Bad Debts Expense.

d. This is a required question On August 15th, Diamond Drills received $500 from an account that had been previously written off. Record the required journal entry(ies).

e. What is the balance in Allowance for Doubtful Accounts on August 16th?

Answer 1

a)

Allowance for doubtful accounts	$   5,900
Accounts receivable		$   5,900
(To record written off of accounts receivable)

b)

Accounts receivable ($34,000-$5,900)	$   28,100
Allowance for doubtful balance ($28,100*5%)	$     1,405

c)

Baddebt expenses ($1,405-5,200+5,900)	$     2,105
Allowance for doubtful accounts		$   2,105
(To record baddebt expenses)

d)

Accounts receivable	$        500
Allowance for doubtful accounts		$      500
(To reinstate previously written off )
Cash	$        500
Accounts receivable		$      500
(To record collection)

e) Allowance for doubtful accounts balance = $500+$1,405 = $1905

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