Question

On August 31​, 2018​, Rosebud Floral Supply had a $ 150 comma 000 debit balance in Accounts Receivable and a $ 6 comma 000 credit balance in Allowance for Bad Debts. During September​, Rosebud ​made: times Sales on​ account, $ 580 comma 000. Ignore Cost of Goods Sold. times Collections on​ account, $ 613 comma 000. times ​Write-offs of uncollectible​ receivables, $ 9 comma 000.

Journalize all September entries using the allowance method. Bad debts expense was estimated at 1​% of credit sales.

Show all September activity in Accounts​ Receivable, Allowance for Bad​ Debts, and Bad Debts Expense​ (post to these​ T-accounts). 2.

Using the same​ facts, assume that Rosebud used the direct​ write-off method to account for uncollectible receivables.

Journalize all September entries using the direct​ write-off method.

Post to Accounts Receivable and Bad Debts​ Expense, and show their balances at September 30​, 2018.

3. What amount of Bad Debts Expense would Rosebud report on its September income statement under each of the two​ methods?

Which amount better matches expense with​ revenue?

Give your reason.

4. What amount of net accounts receivable would Rosebud report on its September 30​, 2018​, balance sheet under each of the two​ methods? Which amount is more​ realistic? Give your reason

Answer 1

1. Allowance method:

Journal:

T-account:

2. Direct-write off method:

Journal:

T-account:

3.

4.