Scribd
Upload
528 views

HW 7

Costello Company had $110,000 in accounts receivable, $840,000 in sales revenue and $20,000 in sales returns and allowances at year-end. Under the direct write-off method, an adjusting entry was made to write-off $1,400 of L. Dole's uncollectible balance. If the allowance method is used and the allowance account has a credit balance, entries are made to record bad debt expense of 1% of net sales and 10% of accounts receivable. If the allowance account has a debit balance, entries are made to record bad debt expense of 0.75% of net sales and 6% of accounts receivable.

Uploaded by

Mishalm96
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
528 views

HW 7

Costello Company had $110,000 in accounts receivable, $840,000 in sales revenue and $20,000 in sales returns and allowances at year-end. Under the direct write-off method, an adjusting entry was made to write-off $1,400 of L. Dole's uncollectible balance. If the allowance method is used and the allowance account has a credit balance, entries are made to record bad debt expense of 1% of net sales and 10% of accounts receivable. If the allowance account has a debit balance, entries are made to record bad debt expense of 0.75% of net sales and 6% of accounts receivable.

Uploaded by

Mishalm96
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Mishal Mustafa

BTA111
Prof. Wu
Exercise Seven
The ledger of Costello Company at the end of the current year shows Accounts Receivable
$110,000, Sales Revenue $840,000, and Sales Returns and Allowances $20,000.
Instructions
(a) If Costello uses the direct write-off method to account for uncollectible accounts,
journalize the adjusting entry at December 31, assuming Costello determines that L. Dole’s
$1,400 balance is uncollectible.
(b) If Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 1% of net sales, and (2) 10% of accounts receivable.
(c) If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be (1)
0.75% of net sales and (2) 6% of accounts receivable.

a)
Journal Entry
Date Account Title & Explanation Debit Credit
Dec 31 Bad debts Expense $1,400
Accounts Receivable $1,400
(To record writing off uncollectible
accounts)

b) Bad debts expense = ( sales rev. – sales returns & allowances) * 1%


= ($840,000-$20,000)*1%
= $8,200
Journal Entry
Date Account Title & Explanation Debit Credit
Dec 31 Bad debts Expense $8,200
Allowances for doubtful accounts $8,200
(To record writing off uncollectible
accounts)
Bad debts expense = (Acc. Receivable * 10%) – Allowance to doubtful accounts (Cr.)
= ($110,000*10%)- $2,100
= $8,900
Journal Entry
Date Account Title & Explanation Debit Credit
Dec 31 Bad debts Expense $8,900
Accounts for Doubtful Accounts $8,900
(To record writing off uncollectible
accounts)

c) Bad debts expense = (sales rev. – sales returns and allowance)*0.75%


= ($840,000 - $20,000) * 0.75%
= $6,150
Journal Entry
Date Account Title & Explanation Debit Credit
Dec 31 Bad debts Expense $6,150
Allowances for doubtful accounts $6,150
(To record writing off uncollectible
accounts)

Bad debts expense = (Acc. Receivable * 6%) – Allowance to doubtful accounts (Dr.)
= ($110,000*6%)- $200
= $6,800
Journal Entry
Date Account Title & Explanation Debit Credit
Dec 31 Bad debts Expense $6,800
Allowances for doubtful accounts $6,800
(To record writing off uncollectible
accounts)

You might also like