Question

The Jenko Company uses the percent of sales method of accounting for uncollectible accounts receivable. At the beginning of the current year, the Allowance for Doubtful Accounts had normal balance of $10,000. The following transactions took place during the current year:

Sept. 7	Jenko Company determined that the $21,400 account receivable of the Helena Company was uncollectible and wrote it off.
Dec. 31	Jenko Company estimates that 2% of its $2,200,000 of credit sales would be uncollectible. The Accounts Receivable Account had a balance of $1,250,000

Required:

Part a. Prepare journal entries needed to account for the above information.

Part b. Determine the balance of the Allowance for Doubtful Accounts at the end of the current year. Assume that the transactions above are the only transactions affecting this account during the year.

Part c. Illustrate the impact (or explain the impact including location) on the Income Statement and the Balance Sheet of the above information.

Answer 1

solution a:

Journal Entries - Jenko Company
Date	Particulars	Debit	Credit
7-Sep	Allowance for doubtful accounts Dr	$21,400.00
	To Accounts receivables		$21,400.00
	(To write off receivables)
31-Dec	Bad debts expense Dr	$44,000.00
	To Allowance for doubtful accounts		$44,000.00
	(To record bad debts expense)

Solution b:

Balance in allowance for doubtful account at the end of year = Beginning balance + Bad debts expense - Ending balance

= $10,000 + $44,000 - $21,400 = $32,600

Solution c:

Jenko company
Income Statement (Partial)
Particulars	Amount
Bad debts expense	$44,000.00

Jenko company
Balance sheet (Partial)
Particulars		Amount
Accounts receivables, Gross	$1,250,000.00
Less: Allowance for doubtful accounts	$32,600.00
Accounts receivables, net		$1,217,400.00