Question

Web Wizard, Inc., has provided information technology services for several years. The company uses the percentage of credit sales method to estimate bad debts for internal monthly reporting purposes. At the end of each quarter, the company adjusts its records using the aging of accounts receivable method. The company entered into the following selected transactions during the first quarter of 2017 a. During January, the company provided services for $40,000 on credit. b. On January 31, the company estimated bad debts using 1 percent of credit sales. c. On February 4, the company collected $20,000 of accounts receivable. d. On February 15, the company wrote off a $100 account receivable. e. During February, the company provided services for $30,000 on credit. f On February 28, the company estimated bad debts using 1 percent of credit sales. g. On March 1, the company loaned $2,400 to an employee who signed a 6 percent note, due in six months. h. On March 15, the company collected $100 on the account written off one month earlier. i. On March 31, the company adjusted for uncollectable accounts, based on the following aging analysis, which includes the preceding transactions (as well as others not listed). Prior to the adjustment, Allowance for Doubtful Accounts had an unadjusted credit balance of $1,200 j. On March 31, the company accrued interest earned on the note Number of Days Unpaid 31-60 Total 0-30 61-90 Over 90 Customer $ 100 Altavista Tourism 200 $ 80 20 Bayling Bungalows Others (n Xciting Xcursions 400 400 17,000 6,800 shown to 8,400 1,000 800 space) 400 400 Total Accounts Receivable $18,000 $8,480 $1,020 $1,200 $7,300 Estimated uncollectable (%) 2% 10% 20% 40%

Answer 1

1-a.

Transaction

Assets

=

Liabilities

+

Shareholder's equity

a.

Accounts receivable

40000

Service revenue

40000

b.

Allowance for doubtful accounts

Bad debt expense

(40000*1%)

-400

(40000*1%)

-400

c.

Cash

20000

Accounts receivable

-20000

d.

Allowance for doubtful accounts

100

Accounts receivable

-100

e.

Accounts receivable

30000

Service revenue

30000

f.

Allowance for doubtful accounts

Bad debt expense

(30000*1%)

-300

(30000*1%)

-300

g.

Cash

-2400

Note receivable

2400

h1. Reversal of write-off

Accounts receivable

100

Allowance for doubtful accounts

-100

h2. Collection

Cash

100

Accounts receivable

-100

i.

Allowance for doubtful accounts

478

Bad debt expense

-478

(Note:1)

(Note:1)

j.

Interest receivable

12

Interest revenue

12

1-b.

Journal entries:

Transaction

General Journal

Debit

Credit

a.

Accounts receivable

40000

Service revenue

40000

(Services provided on account)

b.

Bad debt expense

(40000*1%)

400

Allowance for doubtful accounts

400

(Baddebts estimated)

c.

Cash

20000

Accounts receivable

20000

(Collected from customers)

d.

Allowance for doubtful accounts

100

Accounts receivable

100

(Accounts receivable written off)

e.

Accounts receivable

30000

Service revenue

30000

(Services provided on account)