Question

22. The December 31, 2018 balance sheet of Barone Company had Accounts Receivable of $400,000 and a credit balance in Allowance for Doubtful Accounts of $32,000. During 2019, the following transactions occurred: sales on account, $1,500,000; sales returns and allowances, $50,000; collections from customers, $1,250,000; accounts written off, $36,000; previously written off accounts of $6,000 were collected.

(a)   Journalize the 2019 transactions listed above.

(b)   Prepare the journal entry to record bad debt expense for 2019 assuming that the company estimates that 8% of the ending balance in accounts receivable at December 31, 2019, will become uncollectible.

Answer 1

(a)

Account Titles	Debit	Credit
Accounts receivable	$1,500,000	-
Sales	-	$1,500,000
Sales returns and allowances	$50,000	-
Accounts receivable	-	$50,000
Cash	$1,250,000	-
Accounts receivable	-	$1,250,000
Allowance for doubtful accounts	$36,000	-
Accounts receivable	-	$36,000
Accounts receivable	$6,000	-
Allowance for doubtful accounts	-	$6,000
Cash	$6,000	-
Accounts receivable	-	$6,000

(b)

Ending balance of Accounts receivable:

= $400,000 + $1,500,000 - $50,000 - $1,250,000 - $36,000

= $564,000

Balance in allowance for doubtful accounts:

= $32,000 - $36,000 + $6,000

= $2,000

Account Titles	Debit	Credit
Bad debt expense ($564,000 X 8%) - $2,000	$43,120	-
Allowance for doubtful accounts	-	$43,120