Question

In: Accounting

The following is an excerpt from an unadjusted trial balance of Bob's BBQ Company: DB CR  ...

The following is an excerpt from an unadjusted trial balance of Bob's BBQ Company:
DB CR      

Accounts Receivable                   12000

Notes Receivable, trade               2000

Allowance for Doubtful Accounts 200

Sales Revenue 1040000

Returned Sales 3000

Purchases 50000

Purchase Returns and Allowances 2000

Retained Earnings 15700

Required

Prepare the appropriate entries indicated below. Each item is independent.
a) Record bad debt expense, assuming company experience indicates that 40 percent of sales are on account and 2 percent of net credit sales prove uncollectible.
b) Record bad debt expense if an aging schedule indicates that $1,000 of the receivable at the end of this year will not be collected.
c) Record bad debt expense if company policy requires the allowance for doubtful accounts be maintained at 5 percent of total trade receivables.
d) In April, four accounts totalling $500 were in excess of 90 days old and were determined by the collection department to be uncollectible.
e) In May of the year, one of the accounts written off in (d) was paid in full in the amount of $200.

Solutions

Expert Solution

a)

Account Titles Debit Credit
Bad Debt Expense $           8,296
       Allowance for Doubtful Accounts     $            8,296


Bad Debt Expense = $(1040000-3000)*40%*2% = 8296
It is assumed that returned sales are also 40% on account of credit sales.

b)

Account Titles Debit Credit
Bad Debt Expense $               800
       Allowance for Doubtful Accounts     $               800

c)

Account Titles Debit Credit
Bad Debt Expense $               700
       Allowance for Doubtful Accounts     $               700

d)

Account Titles Debit Credit
Allowance for Doubtful Accounts $               500
       Accounts Receivable     $               500

e)

Account Titles Debit Credit
Accounts Receivable $               200
       Allowance for Doubtful Accounts     $               200
Cash $               200
       Accounts Receivable     $               200

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