Question

cornerstone Exercise 5-25 (Algorithmic) Percentage of Credit Sales Clarissa Company has credit sales of $522,000 during 2019 and estimates at the end of 2019 that 2.5% of these credit sales will eventually default. Also, during 2019 a customer defaults on a $770 balance related to goods purchased in 2018. Prior to the write-off for the $770 default, Clarissa's accounts receivable and allowance for doubtful accounts balances were $402,000 and $129 (credit), respectively, Required: - 1. Prepare the journal entry to record the defaulted account. Allowance for Doubtful Accounts 776 Accounts Receivable Record write-off of defaulted account Feedback Check My Work 1. The percentage of credit sales method attempts to estimate the ending balance in Bad Debt Expense 2. Prepare the adjusting entry to record the bad debt expense for 2019. Bad Debt Expense Allowance for Doubtful Accounts Record adiusting entry for bad debt expense estimate

Answer 1

Solution:

Requirement 1:

General Journal	Debit	Credit
Allowance for Doubtful Accounts	$                 770
Accounts Receivables		$                 770
( To record write-off of defaulted account)

Requirement 2:

General Journal	Debit	Credit
Bad Debts Expense ( $522,000*2.5%)	$           13,050
Allowance for Uncollectible Accounts		$           13,050
(To record bad debts expense estimate)

Notes:

1) Bad Debts Expense = Credit Sales * Percentage of estimated default =  $522,000*2.5% = $ 13,050