Question

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Two companies have asked you to record journal entries in two different areas associated with receivables, at the end of 2017.

Company I

Mandalay Company requests that you record journal entries for its bad debt expense and uncollectible accounts receivable in 2017. Mandalay’s January 1, 2017, balances relevant to accounts receivable are as follows:

                                                                                    Dr                                 Cr

Accounts receivable                                              $400,000

Allowance for doubtful accounts                                                                  $20,000

During 2017:

• $45,000 of accounts receivable were uncollectible, and no more effort to collect these accounts will be made.

• Total sales were $1,200,000, of which $200,000 were cash sales.

• $900,000 was collected on account.

Required:

a. i) If Mandalay used the credit sales method to estimate bad debt expense and uses 4% of credit sales as its estimate of bad debts, provide the journal entries at December 31 to record writeoffs and bad debts expense for 2017. [6 marks]

ii) Provide the December 31, 2017, Statement of Financial Position disclosure for net accounts

receivable. [12 marks]

b. i) If Mandalay decided to use the accounts receivable method to estimate net accounts receivable, and uses 9% of accounts receivable at year end as its estimate of uncollectibles, provide the journal entries at December 31 to record write-offs and bad debt expense for 2017.

[15 marks]

ii) Provide the December 31,2017, balance sheet disclosure for net accounts receivable.

[3 marks]

Answer 1

Hey there !!

I will help you with the recording of Bad debts and Account receivables!

Let us start step by step:

Under Credit Sales Method Approach
Opening Balance	Dr	Cr
Accounts receivable	$400,000
Allowance for doubtful accounts		$20,000
During the Year
Uncollectible Accounts	$45,000
Total Sales (A)	$1,200,000
Cash Sales (B)	$200,000
Credit Sales (A-B)	$1,000,000
Cash Collected on credit Sales	$900,000
Estimated Bad debts Rate	4%
Estimated Allowance for bad debts (4% of Credit Sales)	$40,000
(4% of 1000000)

	Under Credit Sales Method Approach
	Journal Entries to Record and Write Off bad debts
	Statement of Net Accounts Receivable
		Write off of bad Debts					Debit Amount	Credit Amount
	1.	Bad debts expense A/c				Dr	20,000
		To Allowance for Bad debts				Cr		20,000
		(being allowance created for bad debts)
	2.	Allowance for Bad debts A/c				Dr	40,000
		P&L A/c				Dr	5,000
		Accounts Receivable A/c				Cr		45,000
		(write off of Accounts recevable)

Balance Sheet
Accounts Receivable					500000
Less: Allowance for bad debts					-45000	455,000.00

Accounts receivable method
9% of accounts receivable at year end as its estimate of uncollectibles
During the Year
Uncollectible Accounts	$45,000
Total Sales (A)	$1,200,000
Cash Sales (B)	$200,000
Credit Sales (A-B)	$1,000,000
Cash Collected on credit Sales	$900,000
Account Receivables (400000 + 100000)	$500,000
Estimated Bad debts Rate	9%
Estimated Bad Debts (4% of Credit Sales)	$45,000
(9% of 100000)

Under Accounts Receivable Method
	Write off of bad Debts					Debit Amount	Credit Amount
1.	Bad debts expense A/c				Dr	25,000
	To Allowance for Bad debts				Cr		25,000
	(being allowance created for bad debts)
2.	Allowance for Bad debts A/c				Dr	45,000
	Accounts Receivable A/c				Cr		45,000
	(write off of Accounts recevable)
	Balance Sheet
	Accounts Receivable					500000
	Less: Allowance for bad debts					-45000	455,000.00