Question

During the year, Luke's Hobbies had the following: Net Sales Cash Sale Credit Sales S422,000 111,000 Collection on Credit sales Beginning Accounts Receivable Ending Accounts Receivable 300,000 54,000 Allowance for Doubtful Accounts 2,700 Credit 1. Experience suggests that bad debts will amount to 2.7% of credit sale. The company uses the percent-of-sales allowance method to account for uncollectibles. Journalize the Bad Debt Expense. Assume the same facts as in #1 except Luke's Hobbies uses the percent-of-receivable method. Experience suggests that the uncollectible accounts will amount to 4.9% of accounts receivable. Journalize the adjustment to record the bad debt expense.

Answer 1

Solution 1:

Journal Entries - Hobbies
Event	Particulars	Debit	Credit
1	Bad debts expense Dr [($422,000 - $111,000)*2.7%]	$8,397.00
	To Allowance for doubtful accounts		$8,397.00
	(To record bad debts expenses)

solution 2:

Ending accounts receivables = Beginning receivables + Credit sales - Collections

= $54,000 + ($422,000 - $111,000) - $300,000

= $65,000

Journal Entries - Hobbies
Event	Particulars	Debit	Credit
1	Bad debts expense Dr ($65,000*4.9% - $2,700)	$485.00
	To Allowance for doubtful accounts		$485.00
	(To record bad debts expenses)