Question

At January 1, 2015, Windy Mountain Flagpoles had Accounts receivable of $34.000 and Allowance for Bad Debts had a credit balance of $3,000. During the year, Windy Mountain Flagpoles recorded the following: a. Sales of $ 189,000 ($165,000 on account: $ 24,000 for cash) b. Collections on account, $ 133,000 c. Write-offs of uncollectible receivables, $ 2,800. 1. Journalize Windy's transactions that occurred during 2015. The company uses the allowance method. 2. Post Windy's transactions to the Accounts Receivable and Allowance for Doubtful Accounts T-accounts 3. Journalize Windy's adjustment to record bad debts expense assuming Windy estimates bad debts as 1% of credit sales. Post the adjustment to the appropriate T-accounts 4 Show how Windy Mountain Flagpoles will report net accounts receivable on its December 31, 2015 balance sheet. 5. Journalize Windy's adjustment to record bad debts expense assuming Wind estimates bad debts as 2% of accounts receivable. Post the adjustment to th appropriate t-accounts 6. Show how Windy Mountain Flagpoles will report net accounts receivable its December 31, 2015 balance sheet.

Answer 1

1. Journal Entry Windy Mountain Flagpoles Books of accounts for the year ending Dec 31, 2015 Currency: $ Date Debit Credit FY15 Cash A/c 24,000 Accounts Recievable A/c 165,000 Sales 189,000 (Narrative Being sales made on account and cash) FY15 Allowance for Doubtful Accounts A/c 2,800 Accounts Recievable A/c 2,800 (Narrative Bad debt written off, being uncollectible)

2. T Accounts Windy Mountain Flagpoles Windy Mountain Flagpoles Accounts recievable A/c Allowance for Doubtful accounts Debit Currency: $ Debit Currency: $ opening balance Currency:$ opening balance Currency: $ Write off during the year Closing balance to be C/f Credit Credit 34,000 2,800 3,000 165,000 Closing balance to be C/f 199,000 Credit sales 200 199,000 3,000 199,000 3,000

3 Bad debt expense Recognition entry Windy Mountain Flagpoles Windy Mountain Flagpoles Books of accounts for the year ending Dec 31, 2015 Allowance for Doubtful accounts Currency: $ Write off during the year Closing balance to be C/f Currency:$ Debit Credit Debit Currency: $ 2,800 opening balance 1,850 4,650 Credit 3,000 1,650 4,650 Date FY15 Bad debts expense A/c Allowance for Doubtful Accounts A/c 1,650 Bad debt recognised 1,650 (Narrative Being Bad debt expense recorded

4. Balance sheet as at December 31, 2015 Windy Mountain Flagpoles Balance sheet extract Currency: $ Amount Accounts recievable, gross 199,000 Less: Allowance for dountful accounts 1,850 197,150 Accounts recievable, Net

5 Bad debt expense Recognition entry Windy Mountain Flagpoles Books of accounts for the year ending Dec 31, 2015 Windy Mountain Flagpoles Allowance for Doubtful accounts Date FY15 Currency: $ Credit Currency: $ Write off during the year Closing balance to be C/f Debit Currency: $ 2,800 opening balance 4,180 Bad debt recognised 6,980 Credit Debit 3,000 3,980 6,980 Bad debts expense A/c 3,980 3,980 Allowance for Doubtful Accounts A/c (Narrative Being Bad debt expense recorded

6. Balance sheet as at December 31, 2015 Windy Mountain Flagpoles Balance sheet extract Currency $ Accounts recievable, gross Amount 199,000 4,180 194,820 Less: Allowance for dountful accounts Accounts recievable, Net