Question

During the current year, Bob's Ceramics Shop had sales revenue of $60,000, of which $25,000 was on credit. At the start of the current year, Accounts Receivable showed a $3,500 debit balance and the Allowance for Doubtful Accounts showed a $300 credit balance. Collections of accounts receivable during the current year amounted to $18,000.

Data during the current year follow:

a. On December 31, an Account Receivable (Toby’s Gift Shop) of $550 from a prior year was determined to be uncollectible; therefore, it was written off immediately as a bad debt.

b. On December 31, on the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.

Required:

1. Prepare the required journal entries for the two items on December 31, end of the accounting period.
2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for the current year. Disregard income tax considerations.

Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the balance sheet for the current year. Disregard income tax considerations. (Amounts to be deducted should be indicated by a minus sign.) BOB'S CERAMICS SHOP Partial Balance Sheet As of December 31 Current assets: Accounts receivable $ 28,500 (750) ► Allowance for doubtful accounts Accounts receivable, net of allowance for doubtful accounts $ 27.750 < Req 2A Req 2B> Red text In cates no response was expected in a cell or a formula-based calculation is incorrect: no points deducted

Answer 1

1.

Date	Account title	Debit	Credit
	Allowance for doubtful accounts	$   550
	Accounts receivable		$   550
	Baddebt expenses ($25,000*2%)	$   500
	Allowance for doubtful accounts		$   500

2.

Beginning accounts receivable	$       3,500
Add: Credit sales	$    25,000
Less: Cash collected	$ (18,000)
Less: Written off during the year	$        (550)
Ending accounts receivable	$       9,950

Allowance for doubtful accounts, Beginning balance	$    300
Add: Baddebt expenses	$    500
Less: written off during the year	$ (550)
Allowance for doubtful accounts, Ending balance	$    250

Current assets
Accounts receivable	$   9,950
Allowance for doubtful accounts	$    (250)
Accounts receivable, net of allowance for doubtful accounts	$   9,700

You can reach me over comment box if you have any doubts. Please rate this answer