Question

The Links Company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transactions occurred: September 7 Links Company determined that the $8,000 account receivable of the Rainier Company was uncollectible, and wrote it off. October 15 Links Company determined that the $3,500 account receivable of the Olympic Company was uncollectible and wrote it off. November 9 Rainier Company paid $6,000 of the amount owed to the Links Company. Links Company does not expect further collections from Rainier Company December 31 Links Company estimates that 1% of its $1,900,000 of credit sales would be uncollectible. 1. Prepare the general journal entries to record these transactions. (11 points) 2. If the balance of the allowance for uncollectible accounts was a $4,000 credit on January 1 of the current year, determine the balance of the allowance for uncollectible accounts at December 31 of the current year. Assume that the transactions above are the only transactions affecting the allowance for uncollectible accounts during the year. (see below) (3 points)

Answer 1

DATE	PARTICULARS	DEBIT ($)	CREDIT ($)
Sept 7	Allowance for doubtful accounts	8,000
	Rainier Company		8,000
	(The uncollectible amount written-off)
Oct 15	Allowance for doubtful accounts	3,500
	Olympic Company		3,500
	(The uncollectible amount written-off)
Nov 9	Rainier company	8,000
	Allowance for doubtful accounts		8,000
	(entry reinstated for collection)
Nov 9	Cash	6,000
	Rainier Company		6,000
	(partial debt collected from debtor.)
Nov 9	Allowance for doubtful accounts	2,000
	Rainer Company		2,000
	(The uncollectible amount written-off)
Dec 31	Bad debts expense	19,000
	Allowance for doubtful accounts		19,000
	(The uncollectible amount regarded as bad debt)

Now, the allowance of uncollectible amounts:

ALLOWANCE FOR DOUBTFUL AMOUNTS
DATE	DEBIT ($)	CREDIT ($)	DATE
Sept 07	8,000	4,000	Jan 01 (balance)
Oct 15	3,500	8,000	Nov 09
Nov 09	2,000	19,000	Dec 31
		17,500	Dec 31 (balance)