In: Accounting
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.)
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 |