Question

The following information is provided regarding Garry Limited’s accounts receivable and allowance for doubtful accounts:

Accounts Receivable, January 1, 2019 $1,450,000

Collections of Accounts Receivable during the year $1,700,000

Write-offs of Accounts Receivable $ 425,000

Accounts Receivable December 31, 2019 $1,800,000

Allowance for Doubtful Accounts (December 31, 2019 balance (before bad debts adjusting entry at December 31, 2019) $ 155,000(debit)

Required:

(a) Calculate the credit sales for the year 2019.

(b) Provide the journal entry that was made to write-off the uncollectible amounts during 2019.

(c) Ignoring your answer to (a) and assuming that credit sales for 2019 were $4.15 million, prepare the bad debts adjusting entry assuming that management estimates that 3.00% of the credit sales would be uncollectible.

(d) After recording your entry from part (c), is the balance in the allowance for doubtful accounts adequate? Explain

Answer 1

(a)	Credit sales for 2019
	Closing accounts Receivable	1,800,000
	Add: Write-offs	425,000
	Add: Collection	1,700,000
	Less: Opening	1,450,000
	Credit Sales	2,475,000
(b)	Journal Entry
	Accounts Titles & Explanation	Debit	Credit
	Allowance for Doubtful Accounts	425,000
	Accounts Receivable		425,000
	(Being accounts receivable write-off)
( c )	Journal Entry
	Accounts Titles & Explanation	Debit	Credit
	Bad Debt Expense	124,500
	Allowance for Doubtful Accounts		124,500
	(Being bad debt expense booked)
	(4,150,000 x 3% )
(d)	After recording entry in part ( c) , still there is debit balance of $ 30,500   (155,000 - 124,500 ) in allowance for dobutful accounts. This is balance is not adequate, as the balance in allowance for doubtful accounts at year end should represent a reasonable % of closing accounts receivable balance, based on the collectability of the accounts receivable.