Question

During the year ended December 31, 2018, Kelly's Camera Shop had sales revenue of $220,000, of which $110,000 was on credit. At the start of 2018, Accounts Receivable showed a $11,000 debit balance and the Allowance for Doubtful Accounts showed a $700 credit balance. Collections of accounts receivable during 2018 amounted to $78,000. Data during 2018 follow: a. On December 10, a customer balance of $2,000 from a prior year was determined to be uncollectible, so it was written off. b. On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.
​​​​​​

Answer 1

Solution 1:

Journal Entries
Event	Particulars	Debit	Credit
10-Dec	Allowance for doubtful accounts Dr	$2,000
	To Accounts Receivable		$2,000
	(To record write off)
31-Dec	Bad debts expense Dr ($110,000*2%)	$2,200
	To Allowance for doubtful accounts		$2,200
	(To record estimated bad debt losses)

Solution 2A:

Income Statement
year ending december 31, 2018
Operating Expense:
Bad debt expense	2200

Solution 2B:

Balance Sheet (Partial)
At December 31, 2018
Current assets:
Accounts receivables Gross (11000+110000-78000-2000)	$41,000
Allowance for Doubtful accounts ($700- 2000+2200)	$900
Accounts receivables (Net)	$40,100

Solution 3:

No, 2% rate does not appear to be reasonable.