Document Sample

```					A/R – Bad Debt Expense – Allowance for Bad Debts
(1) Before making any 2006 adjusting entries, Company XYZ has a balance in the Allowance for
Bad Debts of \$4,000 (dr.). If, after using an aging schedule, it is estimated that \$10,000 of the
A/R balance will be uncollectible, what adjusting entry would be required? What would be the
ending balance in the Allowance for Bad Debts account?

____Allowance for B/D_____
4,000
? = 14,000

________________________
10,000

Allowance for B/D                14,000

(2) Before making any 2006 adjusting entries, Company XYZ has a balance in the Allowance for
Bad Debts of \$4,000 (dr.). If XYZ estimates that 5% of total credit sales for 2006 will ultimately
prove uncollectible, what adjusting entry would be required if credit sales for 2006 totaled
\$100,000? What would be the ending balance in the Allowance for Bad Debts account?

____Allowance for B/D_____
4,000

5,000

________________________
1,000

100,000 x .05 = 5,000

Allowance for B/D                5,000
(3)

As of 12/31/2005, Scion Company has performed the following year-end analysis of its
accounts receivable:

Total  1-30 Days 31-60 Days           61-90 Days      Over 90 Days
\$80,000 \$50,000    \$15,000               \$9,000         \$6,000

The company’s sales for the year were \$900,000, of which 25% were cash sales. Scion
Company has estimated the following percentages relating to its bad debts and uncollectible
accounts adjustments for each of the three alternative approaches indicated.
Aging of receivables approach               Percent of total receivables approach
1-30 days              6%                  Ending accounts receivable 10%
31-60 days           15%
61-90 days            40%                Percent of credit sales approach
Over 90 days          75%                  Total credit sales    1.5%

Prior to adjustment, the allowance for uncollectible accounts has a credit balance of \$400. In the space
provided below, provide the necessary end-of-year adjusting journal entry that Fleetwood would make if
it uses the aging of receivables approach. [6]

First, calculate the ending balance of the Allowance for Bad Debt account using the aging of
receivables method.

(50,000 x .06) = 3,000
(15,000 x .15) = 2,250
(9,000 x .40) = 3,600
(6,000 x .75) = 4,500

13,350

So the Allowance account needs to have an ending balance of 13,350.

____Allowance for B/D_____
400

12,950

________________________
13,350

Allowance for B/D                  12,950
(4) At the beginning of 2006, the balance in the Allowance for Doubtful Accounts account was
\$11,000 (cr.). During the year, \$8,000 of delinquent accounts was written off. Then, \$2,000 of
these delinquent accounts was ultimately determined to be collectible, and these accounts were
collected. After using an aging schedule, determines that \$7,500 of its A/R will be uncollectible.
What adjusting entry would be made to account for the bad debts? What would be the ending
balance in the Allowance for Doubtful Accounts account?

Entry to Record Write-Off

(a)    Dr. Allowance for Bad Debts 8,000
Cr. Accounts Receivable 8,000

Entries to Record Bad Debt Recovery

(b)    Dr. Accounts Receivable   2,000
Cr. Allowance for Bad Debts             2,000

(c)    Dr. Cash                  2,000
Cr. Accounts Receivable   2,000

___Allowance for B/D_____
11,000
(a) 8,000
2,000 (b)
? = 2,500 (d)

________________________
7,500

The entry to record bad debt expense is:

(d)    Dr. Bad Debt Expense                  2,500
Cr. Allowance for B/D                   2,500

```
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
 views: 706 posted: 1/9/2009 language: English pages: 3