Question

At the beginning of Year 1, a company has a balance of $25,200 in accounts receivable. Because the company is a privately owned company, the company has used only the direct write-off method to account for uncollectible accounts. However, at the end of Year 1, the company wishes to obtain a loan at the local bank, which requires the preparation of proper financial statements. This means that the company now will need to use the allowance method. The following transactions occur during Year 1 and Year 2. During Year 1, install air conditioning systems on account, $182,000. During Year 1, collect $177,000 from customers on account. At the end of Year 1, estimate that uncollectible accounts total 10% of ending accounts receivable. In Year 2, customers’ accounts totaling $7,200 are written off as uncollectible.

1. Record each transaction using the allowance method. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

1. During Year 1, install air conditioning systems on account, $182,000.

2. During Year 1, collect $177,000 from customers on account.

3. At the end of Year 1, estimate that uncollectible accounts total 10% of ending accounts receivable.

4. In Year 2, customers’ accounts totaling $7,200 are written off as uncollectible.

Answer 1

Journal entry

No	General Journal	Debit	Credit
a	Account receivable	182000
	Sales revenue		182000
b	Cash	177000
	Account receivable		177000
c	Bad debt expense (25200+5000)*10%	3020
	Allowance for doubtful accounts		3020
d	Allowance for doubtful accounts	7200
	Account receivable		7200