Question

Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable Master Company’s December 31, 2019, balances related to accounts receivable follow. Accounts receivable $720,000 Dr. Allowance for doubtful accounts 36,000 Cr. During 2020, $81,000 of accounts receivable is considered uncollectible, and no more effort to collect these accounts will be made. Total sales for 2020 are $2,160,000, of which $360,000 are cash sales. A total of $1,620,000 was collected on account during 2020. a. Assuming that Master uses the allowance method to estimate net accounts receivable and uses 9% of accounts receivable as its estimate of expected credit losses, prepare the (1) journal entries to record write-offs and bad debt expense for 2020, and (2) disclosure on gross and net accounts receivable on the balance sheet at December 31, 2020. b. How would the answers to part a change (if at all) assuming instead that the December 31, 2019, balance in the allowance for doubtful accounts was a debit balance of $9,000? a. 1. Date Account Name Dr. Cr. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer To record account write-off Dec. 31, 2020 Answer Answer Answer Answer Answer Answer To record bad debt expense 2. Note: Do not use negative signs with your answers. Balance Sheet, December 31, 2020 Accounts receivable Answer Less: Allowance for doubtful accounts Answer 0 Accounts receivable, net Answer 0 b. 1. Date Account Name Dr. Cr. Dec. 31, 2020 Answer Answer 0 Answer 0 Answer Answer 0 Answer 0 To record account write-off Dec. 31, 2020 Answer Answer 0 Answer 0 Answer Answer 0 Answer 0 To record bad debt expense 2. Note: Do not use negative signs with your answers. Balance Sheet, December 31, 2020 Accounts receivable Answer 0 Less: Allowance for doubtful accounts Answer 0 Accounts receivable, net Answer 0

Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable

Master Company’s December 31, 2019, balances related to accounts receivable follow.

Accounts receivable	$720,000 Dr.
Allowance for doubtful accounts	36,000 Cr.

During 2020, $81,000 of accounts receivable is considered uncollectible, and no more effort to collect these accounts will be made. Total sales for 2020 are $2,160,000, of which $360,000 are cash sales. A total of $1,620,000 was collected on account during 2020.

a. Assuming that Master uses the allowance method to estimate net accounts receivable and uses 9% of accounts receivable as its estimate of expected credit losses, prepare the (1) journal entries to record write-offs and bad debt expense for 2020, and (2) disclosure on gross and net accounts receivable on the balance sheet at December 31, 2020.

b. How would the answers to part a change (if at all) assuming instead that the December 31, 2019, balance in the allowance for doubtful accounts was a debit balance of $9,000?

a.

1.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventory—Estimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventory—Estimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	To record account write-off
Dec. 31, 2020	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventory—Estimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventory—Estimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	To record bad debt expense

2.

Note: Do not use negative signs with your answers.

Balance Sheet, December 31, 2020
Accounts receivable	Answer
Less: Allowance for doubtful accounts	Answer
Accounts receivable, net	Answer

b.

1.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventory—Estimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventory—Estimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	To record account write-off
Dec. 31, 2020	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventory—Estimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableInventoryInventory—Estimated ReturnsRefund LiabilitySales RevenueSales ReturnsSales DiscountSales Discount ForfeitedCost of Goods SoldBad Debt ExpenseN/A	Answer	Answer
	To record bad debt expense

2.

Note: Do not use negative signs with your answers.

Balance Sheet, December 31, 2020
Accounts receivable	Answer
Less: Allowance for doubtful accounts	Answer
Accounts receivable, net	Answer

Answer 1

a.

1.

Credit Debit 81,000 Date Account title Dec. 31 Allowance for doubtful accounts 2020 Accounts receivable (To record account write off) 81,000 118,710 Dec. 31 Bad debt expense 2020 Allowance for doubtful accounts (To record bad debt expense) 118,710

Accounts receivable 720,000 Write off Beg. Bal 81,000 36,000 Allowance for doubtful accounts Write off 81,000 Beg. Bal Bad debt expense (bal. fig.) End. Bal. 1,620,000 Revenue End. Bal. 1,800,000 Cash collected 819,000 118,710 73,710 9% of receivable = 819,000 x9% = 73,710

2.

Balance sheet, December 31, 2020 Accounts receivable 819,000 Less: Allowance for doubtful accounts Accounts receivable, net 745,290

b.

1.

Credit Debit 81,000 Date Account title Dec. 31 Allowance for doubtful accounts 2020 Accounts receivable (To record account write off) 81,000 163,710 Dec. 31 Bad debt expense 2020 Allowance for doubtful accounts (To record bad debt expense) 163,710

Accounts receivable 720,000 Write off Beg. Bal 81,000 Allowance for doubtful accounts Beg. Bal 9,000 Bad debt expense Write off| 81,000 (bal. fig.) End. Bal. 1,620,000 Revenue End. Bal. 1,800,000 Cash collected 819,000 163,710 73,710 9% of receivable = 819,000 x9% = 73,710

2.

Balance sheet, December 31, 2020 Accounts receivable 819,000 Less: Allowance for doubtful accounts -73,710 Accounts receivable, net 745,290