Question

The trial balance before adjustment for W. Company shows the following balances.

		Dr.		Cr.
Accounts Receivable		$83,000
Allowance for Doubtful Accounts		2,140
Sales Revenue				$477,700

Using the data above, give the journal entries required to record each of the following cases. (Each situation is independent.)

1.		To obtain additional cash, W. factors without recourse $26,900 of accounts receivable with S. Finance. The finance charge is 10% of the amount factored.
2.		To obtain a 1-year loan of $59,400, W. assigns $71,800 of specific receivable accounts to C. Financial. The finance charge is 9% of the loan; the cash is received and the accounts turned over to C. Financial.
3.		The company wants to maintain the Allowance for Doubtful Accounts at 6% of gross accounts receivable.
4.		Based on an aging analysis, an allowance of $6,306 should be reported. Assume the allowance has a credit balance of $1,078.

Answer 1

In the Question No.1 Factors without recourse $26,900 of accounts raceivable @10% finance charge

Account	debit	credit
Cash	24210
Factoring expense @10% of 26900	2690
Account Raceivable		26900

Question No.2

Account	debit	credit
Cash	59400
Factoring expense @9% of 59400	5346
Due from C financial	7054
Account Raceivable		71800

In this case $7054 will retain by C financial for any doubtful debt or loss.

Question No. 3. The company wants to maintain 6% of Gross Accounts receivable as Allowance for Doubtful Accounts. here teh Total Accounts receivable amount is $83,000 and 6% of $83,000 is $4980. we have already created Allowance for doubtful Accounts is $2140. The balance amount (that is 4080 - 2140 = 2840) if $2840 will create additional allowance to forThe 6% as gross. Please find the below journal entry.

Account	debit	credit
Bad Debt expense	2840
Allowance for Doubtful Accounts		2840

Question No. 4. Based on an ageing analysis, an allowance of $6306 should be reported. Ageing analysis will do normally for Accounts Receivable and assume $6306 is doubtful to receive. Here there is a credit balance of $ 1078 doubtful debts. So we need to create the diffference to amount $5228  bad debt expense.

Account	debit	credit
Bad Debt expense	5228
Allowance for Doubtful Accounts		5228