Question

In: Accounting

Treat the following as three parts as separate cases: Part 1 of 3 Lynbrook, Inc. applies...


Treat the following as three parts as separate cases:
Part 1 of 3 Lynbrook, Inc. applies the allowance method to record transactions relating to their accounts receivables. On December 31, 2018, the company had a debit balance of $475,000 in Accounts Receivable and a credit balance of $25,000 in their Allowance for Doubtful Accounts. During 2019, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows:

a. Provided $1,300,000 of delivery services on credit, terms n/30.

b. Wrote off $18,000 of uncollectible accounts receivable. c. Received $700,000 cash in payment of accounts receivable.

d. In adjusting the accounts on December 31, the company estimated that 2.5% of accounts receivable would be uncollectible.


Required: Prepare journal entries to record Lynbrook’s summarized transactions above and its year-end adjustments to record bad debts expense. (The company applies the allowance method for its accounts receivable. Round amounts to the nearest dollar.)

Solutions

Expert Solution

Journal entries:
S.no. Accounts title and explanations Debit $ Credit $
a. Accounts receivable Dr. 1300000
    Delivery service revenue 1300000
b. Allowance for doubtful accounts Dr. 18000
    Accounts receivable 18000
c. Cash account Dr. 700000
     Accounts receivable 700000
d. Bad debts expenses Dr. 19425
    Allowance for doubtful accounts 19425
Note:
Bad debts expenses
Accounts recievable in beginning 475000
Add: Credit revenue 1300000
Less: Collections -700000
Less: Amount written off -18,000
Accounts receivable at the end 1,057,000
Estimated uncollectibles 2.50%
Required balance of Allowance 26425
Actual balance of allowance:
Beginning balance 25000
Less: Amount written off 18000
Actual balance of allowance: 7000
Bad debts expense (26425-7000) 19425

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