Question

#2 (6 points) At December 3 of the current year company reported the following Total sales for the current year: 55.320.000 Accounts receivable balance at Dec 31 end of current year: $450.000 Allowance for Doubtful Account balance at Dec 31 - 600 credit 1. Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal: (a) 2.5% of credit sales. (b) 8% of accounts receivable. 2. Prepare the necessary entry to write off. Mohr's 800 A/R balance. 3. Prepare the necessary entries to record the recovery of J. Mohr's A/R balance when he pays the company at later date. Accounts Debit Credit Part la Part Ib Part 2 Part 3

Answer 1

1) a) Bad debt expense = Credit sales*2.5%

= $5,320,000*2.5% = $133,000

1) b) Bad debt expense = Accounts Receivable*8%

= $450,000*8% = $36,000

The required journal entries are shown as follows:- (Amounts in $)

	Accounts	Debit	Credit
Part 1a	Bad debt expense	133,000
	Allowance for Doubtful Accounts		133,000
	(To record the bad debt expense)
Part 1b	Bad debt expense	36,000
	Allowance for Doubtful Accounts		36,000
	(To record the bad debt expense)
Part 2	Allowance for Doubtful Accounts	800
	Accounts Receivable		800
	(To write off J. Mohr's Account)
Part 3	Accounts Receivable	800
	Allowance for Doubtful Accounts		800
	(To reverse the account wrote off)
	Cash	800
	Accounts Receivable		800
	(To record the recovery of J. Mohr's Account)