Question

Problem 7-06           Allowance method

The balance sheet of Starsky Company at December 31, 2019, includes the following.

Accounts receivable	$ 182,100
Less: Allowance for doubtful accounts	17,300
	$ 164,800

Transactions in 2020 include the following:

1. Accounts receivable of $78,000 were collected
2. Accounts receivable of $60,000 were collected, in which 2% sales discounts were granted.
3. A $5,300 customer account that was written off the books as worthless in 2019 was reinstated.
4. The $5,300 was received from the customer.
5. Customer accounts of $17,500 were written off during the year.
6. At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $20,000. This estimate is based on an analysis of aged accounts receivable.
7. Instructions: Journalize the above transactions.

Answer 1

Answer:

Event	Account	Debit	Credit
2019 Dec 31	Cash	$76800
	Sales Discount (60000*2%)	$    1,200
	Accounts Receivable		$78000
	(To record collection)
31 Dec	Accounts Receivable	$    5300
	Allowance for doubtful accounts		$    5300
	(To record reinstatement of written off accounts)
31 Dec	Cash	$    5300
	Accounts Receivbale		$    5300
	(To record collection against written off accounts)
31 Dec	Allowance for doubtful accounts	$ 17500
	Accounts Receivbale		$ 17500
	(To record accounts written off)
31 Dec	Bad Debt Expense	$ 14900
	Allowance for doubtful accounts		$ 14900
	(To record bad debt expense)

WORKING NOTE

Calculation of reserve created during the year

Allowance for doubtful debts a/c

Particulars	Amount($)	Particulars	Amount($)
to accounts receivable a/c	17500	By balance b/d	17300
		By account receivable a/c	5300
to balance c/d	20000	By bad debts a/c	14900
Total	37500	Total	37500