Question

On July 31, 2014, D’Amico Management Inc. reported the following account balances in its financial statements:

Accounts receivable............................................................ $ 960,000

Allowance for doubtful accounts......................................... $ 82,000

Bad debt expense................................................................. $ 78,000

During Aug 1 and Dec 31, 2014, D’Amico Management Inc. had the following transactions related to receivables, which occurred in order: The company prepares financial statements annually.

a，Sales were $4,000,000, of which $3,200,000 were on account.

b，Collections of accounts receivable were $3,100,000.

c，Write-offs of accounts receivable were $80,000.

d，Recoveries of accounts previously written off as uncollectible were $5,000.

Required:

1)Preepare the journal entries at the end of 2014 to record each of the four transactions (a)-(d) above.

2)Assume that D’Amico Management Inc. estimates its Bad Debt Expense based on an Aging Analysis of its year-end Account Receivable, which indicates that $40,000 is the desired ending balance for the Allowance for Doubtful account.

a. What amount of Bad Debt Expense will the company record for 2014 if it has a credit balance of $82,000 on July 31, 2014 in its Allowance for Doubtful Accounts?

b. What amount of Bad Debt Expense will the company record for 2014 if it has a debit balance of $82,000 on July 31, 2014 in its Allowance for Doubtful Accounts?

Answer 1