Question

During the year ended December 31, 2018, Kelly’s Camera Shop had sales revenue of $195,000, of which $97,500 was on credit. At the start of 2018, Accounts Receivable showed a $12,000 debit balance and the Allowance for Doubtful Accounts showed a $650 credit balance. Collections of accounts receivable during 2018 amounted to $73,000.

Data during 2018 follow:

1. On December 10, a customer balance of $1,750 from a prior year was determined to be uncollectible, so it was written off.
2. On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.

Required:

1. Give the required journal entries for the two events in December.

1. a. Record the write-off of a certain customer account from a prior year which is not collectible totaling $1,750.

2. Record the estimated bad debt losses at 2 percent of credit sales for the year.

2. a. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the balance sheet and income statement for 2018.

Kelly's Camera Shop
Income Statement (partial)
Year ending December 31, 2018
Operating Expenses

2. b. Show how the amounts related to Accounts Receivable would be reported on the balance sheet?

Kelly's Camera Shop
Balance Sheet (partial)
At December 31, 2018
Current Assets

3. On the basis of the data available, does the 2 percent rate appear to be reasonable?

Answer 1

Date	Account Titles	Debit	Credit
Dec-10	Allowance for Doubtful Accounts	$       1,750
	Accounts Receivable		$         1,750
Dec-31	Bad Debt Expense	$       1,950
	Allowance for Doubtful Accounts		$         1,950

Income Statement
Operating Expenses
Bad Debt Expenses	$       1,950

Balance Sheet
Current Assets
Accounts Receivable	$     34,750
Less Allowance for Doubtful Accounts	$           850
Accounts Receivable, net		$       33,900

3.
No 2% doesnot seem to be reasonable as Beginning Allowance was just $650, whereas amount written off is $1750 from last year