Question

Prepare journal entries related to bad debt expense. (LO 2, 3,9) P8-1A At December 31, 2013, Cafu Co. reported the following information on its state- ment of financial position. Accounts receivable R$960,000 Less: Allowance for doubtful accounts 70,000 During 2014, the company had the following transactions related to receivables. 1. Sales on account R$3,315,000 2. Sales returns and allowances 50,000 3. Collections of accounts receivable 2,810,000 4. Write-offs of accounts receivable deemed uncollectible 90,000 5. Recovery of bad debts previously written off as uncollectible 29,000 96 8 Accounting for Receivables Accounts receivable R$1,325,000 ADA R$9,000 Bad debt expense R$116,000 Instructions (a) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable. (b) Enter the January 1, 2014, balances in Accounts Receivable and Allowance for Doubt- ful Accounts, post the entries to the two accounts (use T-accounts), and determine the balances. (c) Prepare the journal entry torecord bad debt expense for 2014, assuming that an aging of accounts receivable indicates that expected bad debts are R$125,000. (d) Compute the accounts receivable turnover ratio for 2014, assuming the expected bad debt information presented in (c).

Answer 1

Cafu Co. Requirement a Requirement b Journal Enteries Date Particulars 1 Accounts Receivable Sales Revenue Debit in $ Credit in $ 3315000 3315000 Bal. Sales Revenue Allowance for Doubtful Accounts Accounts Receivable 960000 Sales Returns and Allowances 3315000 Cash 29000 Allowance for Doubtful Accounts Cash Bal. 4304000 50000 2810000 90000 29000 2 50000 1325000 Sales Returns and Allowances Accounts Receivable 50000 4304000 3 2810000 Cash Accounts Receivable 2810000 Accounts Receivable Allowance for Doubtful Accounts 90000 Bal. Accounts Receivable 9000 99000 70000 29000 4 90000 Bal. Allowance for Doubtful Accounts Accounts Receivable 90000 99000 5 29000 Requirement d Accounts Receivable Allowance for Doubtful Accounts 29000 6 29000 Cash Accounts Receivable 960000 70000 890000 1 1325000 BAR Allowances BAR net from allowances EAR Allowances EAR net from allowances Average AR 29000 Requirement 125000 1200000 2 1045000 [(1)+(2)/2 Journal Enteries Date Particulars Debit in $ Credit in $ Dec-31 Bad Debt Expense 116000 Allowance for Doubtful Accounts 116000 Expected bad debts => balance needed=$125,000 Balance before adjustment=$9,000. Adjustment required = $125,000-$9,000-$116,000. Credit Sales Returns Net credit sales 3315000 50000 3265000 3265000 1 Net credit sales Average AR AR turnover in times AR turnover in days 1045000 2 3.12 (1)/(2) 117 365/3.12