Question

1. Recognition and Valuation of Accounts Receivable

The December 31, 2018 balance sheet of the Kramer Company had Accounts Receivable of 650,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2019, the following transactions occurred: sales on account $1,550,000; sales returns and allowances, $100,000; collections from customers, $1,250,000; accounts written off, $35,000; previously written off accounts of $8,000 were collected.

Instructions

(a)   Journalize the 2019 transactions.

(b)   If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 6% of accounts receivable, what is the adjusting entry at December 31, 2019?

Answer 1

SOLUTION: A
Journal Entries
Transaction	Account Title and explanation	Debit	Credit
1	Account Receivable	$            1,550,000
	Sales Revenue		$               1,550,000
	(To Record the credit sales)
2	Sales Return and Allowances	$                100,000
	Account Receivable		$                  100,000
	(To Record the sales return and allowances)
3	Cash	$            1,250,000
	Account Receivable		$               1,250,000
	(To record the collection of cash )
4	Allowance for Doubtful Account	$                  35,000
	Account Receivable		$                     35,000
	(To record the write off uncollectable)
5	Account Receivable	$                     8,000
	Allowance for Doubtful Account		$                       8,000
	(To create the account receivable for amount collected)
6	Cash	$                     8,000
	Account Receivable		$                       8,000
	(To record the collection of cash )
SOLUTION: B
	CALCULATION OF ALLOWANCE ACCOUNT ON THE BASIS OF % OF ACCOUNT RECEIVABLE
	Beginning Acct Rece.	$                650,000
	Add: Net Credit Sales	$            1,423,000
	Total	$            2,073,000
	Less: Cash Received	$            1,250,000
	Net Account Receivable	$                823,000
	Estimated uncollectable	6%
	Estimated amount of uncollectable	$                  49,380
	CALCULATION OF BAD DEBT EXPENSES OF THE YEAR
	Estiamted amount of uncollectable of the year	$                  49,380	Credit
	Less: Allowance for Doubtfull Debts (33,000 - 27000)	$                     6,000	Credit
	Balance need to be make entry of Bad Debt	$                  43,380	Credit
	Bad debts expenses recognise in the year =	$                  43,380
Journal Entries
Transaction	Account Title and explanation	Debit	Credit
1	Bad Debt Expenses	$                  43,380
	Allowance for Doubtful Account		$                     43,380