Question

During this year, credit sales were $1,200,000 and collections on account were $1,160,000.

a. Prepare general journal entries for the following transactions that occurred during the year:

(i) Wrote off N. Purcell’s account, $6,800.

(ii) Wrote off J. Stein’s account, $2,400.

(iii) J. Stein, who is in bankruptcy, paid $800 in final settlement of the account written off in transaction.

This amount is not included in the $1,160,000 collections.

(IV) On December 31, estimated the year’s bad debts expense at 1% of credit sales.

b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the year-end balance sheet.

6-Goofy Company, which has been in business for three years, makes all sales on account and does not offer discounts. The firm’s sales, collections, and write-offs of doubtful accounts are shown below:

Year

Sales

Collections

Accounts Written Off

1

$ 660,000

$ 330,000

$ 5,400

2

690,000

600,000

7,200

3

1,050,000

990,000

10,800

a. If the firm uses the direct write-off method of recognizing credit losses during the three years:

(i) Determine the total amount of accounts receivable appearing on the balance sheet at the end of the third period.

(ii) Give the total amount of bad debts expense appearing on the firm’s income statement over the three-year period.

b. If the firm uses the allowance method of recognizing credit losses, at 1.5% sales:

(i) Give the net amount of accounts receivable appearing on the balance sheet at the end of the third period.

(ii) Determine the total amount of bad debts expense appearing on the firm’s income statement over the three-year period.

7-At December 31 of the current year, Mars Company had a balance of $728,000 in its Accounts Receivable account and a credit balance of $6,000 in the Allowance for Doubtful Accounts. The company has aged its accounts as follows:

Current

$592,000

0-60 days past due

64,000

61-180 days past due

48,000

Over 180 days past due

24,000

$728,000

In the past, the company has experienced losses as follows: 1% of current balances, 5% of balances 0-60 days past due, 15% of balances 61-180 days past due, and 30% of balances over 180 days past due. The company bases its bad debts expense on the aging analysis.

a. Prepare the adjusting journal entry to record the bad debts expense for the year.

b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet.

c. On January 15 of the subsequent year, Mars Company wrote off the account of Ares, $2,400. Give the entry for the write-off.

d. On February 20 of the subsequent year, Mars Company collected the $2,400 on the Ares account written off on January 15. Give the entry or entries for the recovery.

8-Brad Company had the following transactions during the current year:

May 7 Received an $25,200, 75-day, 10% note from S. Sabtini in payment of account receivable.

June 1 Wrote off customer M. Rotter’s account, $2,700. (Brad Company uses the allowance method of recording credit losses.)

July 21 S. Sabtini paid note due today.

Sept 15 M. Rotter paid account written off on June 1.

Dec 19 Received a $36,000, 60-day, 9% note from Z. Inman on account.

a. Record the above transactions in general journal form.

b. Make any necessary adjusting entries for interest at December 31.

Answer 1

Account Title and Explanation	Debit	Credit
Allowance for Doubtful Accounts	$6,800
Accounts Receivable - N. Purcell		$6,800
To record write off N. Purcell’s account
Allowance for Doubtful Accounts	$2,400
Accounts Receivable - J. Stein		$2,400
To record write off J. Stein’s account
Accounts Receivable - J. Stein	$800
Allowance for Doubtful Accounts		$800
To record $800 receivable in final settlement of J. Stein’s account
Cash	$800
Accounts Receivable - J. Stein		$800
To record $800 received
Bad Debt Expense	$12,000
Allowance for Doubtful Accounts		$12,000
Balance Sheet
Current Asset:
Accounts Receivable (1200000-1160000)	$40,000
Allowance for Doubtful Accounts	$3,600	$36,400
12000+800-6800-2400