Question

During the year ended December 31, 2017, Kelly’s Camera Equipment had sales revenue of $170,000, of which $85,000 was on credit. At the start of 2017, Accounts Receivable showed a $10,000 debit balance, and the Allowance for Doubtful Accounts showed an $800 credit balance. Collections of accounts receivable during 2017 amounted to $68,000.

Use the following data for 2017 to answer the questions:

1. On December 10, 2017, a customer balance of $1,500 from a prior year was determined to be uncollectable, so it was written off.
2. On December 31, 2017, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.

1. Prepare the required journal entries for the two events in December 2017.

2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the balance sheet and income statement for 2017.

Answer 1

1. Journal Entry for two events in 2017
Date	Accounts Title & Explanation	Debit	Credit
Dec 10, 2017	Allowance for Doubtful Debts	$1,500
	Accounts Receivable		$1,500
Dec 31, 2017	Bad Debts Expenses ($85,000 * 2%)	$1,700
	Allowance for Doubtful Accounts		$1,700

2. Calculation of amount of Accounts Receivable & Bad Debts Expenses
Accounts Receivable
Beginning Balance of Accounts Receivable	$10,000
Add: Credit Sales	$85,000
Less: Collections	-$68,000
Less: Bad debts Written off	-$1,500
End Balance of Accounts Receivable	$25,500
Allowances for Doubtful Accounts
Beginning Balance of Allowances for Doubtful Accounts	$800
Less: Accounts Written Off	-$1,500
Add: Estimated Bad Debts	$1,700
End Balance of Allowances for Doubtful Accounts	$1,000
* Accounts Receivable, Net = $25,500 - $1,000 = $24.500