Question

Exercise 8-04 Assume the following information for Sage Hill Corp. Accounts receivable (beginning balance) Allowance for doubtful accounts (beginning balance) Net credit sales Collections Write-offs of accounts receivable Collections of accounts previously written off $162,000 11,450 930,000 904,000 5,700 1,900 Uncollectible accounts are expected to be 7% of the ending balance in accounts receivable. Prepare the entries to record sales and collections during the period. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit (To record sales on account) (To record collection of accounts receivable) SHOW LIST OF ACCOUNT

Answer 1

The required journal entries for the given transactions are shown as follows:-

Journal Entries (Amounts in $)

Account Titles and Explanation	Debit	Credit
Accounts receivable	930,000
Sales revenue		930,000
(To record sales on account)
Cash	904,000
Accounts receivable		904,000
(To record collections of accounts receivable)
Allowance for doubtful accounts	5,700
Accounts receivable		5,700
(To record write-off of uncollectible accounts)
Accounts receivable	1,900
Allowance for doubtful accounts		1,900
(To reverse write-off of accounts receivable)
Cash	1,900
Accounts receivable		1,900
(To record collection of accounts receivable)

Calculation of ending balance in Accounts Receivable (Amounts in $)

Beginning Balance of Accounts Receivable	162,000
Add: Net credit sales	930,000
Less: Collections on account	(904,000)
Less: Accounts written off	(5,700)
Add: Accounts written off reversed	1,900
Less: Collections of accounts previously written off	(1,900)
Ending Balance of Accounts Receivable	182,300

Calculation of Unadjusted balance in Allowance for Doubtful Accounts (Amounts in $)

Beginning Balance of Allowance for Doubtful Accounts	11,450
Less: Uncollectible Accounts written off	(5,700)
Add: Accounts written off reversed	1,900
Unadjusted balance of Allowance for Doubtful Accounts	7,650

Required Ending Balance of Allowance = Ending Balance of Accounts Receivable*7%

= $182,300*7% = $12,761

Bad debt expense for the period = Ending Balance of Allowance - Unadjusted balance of Allowance

= $12,761 - $7,650 = $5,111

Journal Entries (Amounts in $)

Account Titles and Explanation	Debit	Credit
Bad debt expense	5,111
Allowance for Doubtful Accounts		5,111
(To record bad debt expense)

Ending balance in allowance = Unadjusted balance+bad debt expense

= $7,650+$5,111 = $12,761