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: a. On December 10, a customer balance of $1,750 from prior year was determined to be uncollectible, so it was written off. b. 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 2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the balance sheet and income statement for 2018. 3. On the basis of the data available, does the 2 percent rate appear to be reasonable? Complete this question by entering your answers in the tabs below. Reg1 Reg 2A Reg 2B Give the required journal entries for the two events in December. (If no entry is required for a transaction/event, select "No lournal Entry Required in the first account field.) View transaction list Journal entry worksheet 3 18 Next >

Answer 1

	Working Notes
a	Opening Accounts receivable	12000		5%
	Opening Allowance for doubtful debts	650		15%
b	Sales revenue	195000
c	Credit sales	97500
d	Collections during the year	73000
e	Write of bad debts	1750
f	Current year provision (2% on Credit sales)	1950.00
g	Closing balance a+c-d-e	34750.00		1882.292
	1a	Bad debts expense A/c	Debit	1100
		Allowance for doubtful debts	Debit	650
		To Trade receivable A/c	Credit	1750
	Being trade receivable written off with the provision available and excess has been debited to bad debts expense account which will be taken to income statement
	1b	Bad debts expense A/c	Debit	1950
		To Allowance for doubtful debts	Credit	1950
	Income Statement for the year ended
	Particulars	Debit $
	Revenue
	Sales	195000
	Operating expenses
	Bad debts expense (1950+1100)	1950
	Banace sheet at year ending
	Current Assets
	Accounts Receivable	34750
	Less : Allowance for doubtful debts	1950
	Accounts Receivable Net		32800
3	Based on the data available the provision is not sufficient to meet the bad debts, because last year the bad debts expense 1750 is coming upto 15% of opening balance receviable and the provision is 5 % on approximately on opening balance of receivable. Hence their is a deviation in actual baddebts of 10%. In the current year also the allowance for doubtful debts is coming to 5 % of accounts receivable which may not be sufficient to meet the actual bad debts of next year