Question

2. The December 31, 2019, unadjusted trial balance of Linn Ltd contained the following balances:

Accounts receivable $200,000

Allowances for uncollectible accounts $12,000 CR

Credit sales in 2019 $700,000

Credit sales return in 2019 $100,000

In addition, the firm has given up trying to collect a $9,500 receivable from a customer who recently declared bankruptcy. Linn's management has not yet written off the amount but intends to do so before the books are closed for the year.

Required:

I. Assuming Linn uses the percentage of credit sales method for recording bad debt expense

a. Provide the entry for the write-off of the $9,500.

b. Provide the entry to record the bad debt expense for 2019. On average Linn has experienced a 4% rate of uncollectible accounts over the past 5 years.

c. What would be the final balances in accounts receivable and the allowance for uncollectible accounts (AFDA)?

d. At what value would net accounts receivable be shown on the balance sheet?

II. Assuming Linn uses the percentage of accounts receivable method for recording bad debt expense

a. Provide the entry to record the bad debt expense for 2019 assuming that after the firm recorded the $9,500 of write-offs, it determined that 18% of its remaining accounts receivable would be uncollectible under the aging method.

b. At what value would net accounts receivable be shown on the balance sheet?

Answer 1

1.

Transaction/ Event	Date	Account Titles	Debit	Credit
a.	Dec 31, 2019	Allowance for Doubtful Accounts	9,500
		Accounts Receivable		9,500
b.	Dec 31, 2019	Bad Debt Expense ( 600,000 x 4 % )	24,000
		Allowance for Doubtful Accounts		24,000

c.

	Final Balances
Accounts Receivable	$ 190,500
Allowance for Doubtful Accounts	26,500

d. Net accounts receivable = $ 190,500 - $ 26,500 = $ 164,000

II.

Transaction / Event	Accounts Payable	Debit	Credit
		$	$
a.	Bad Debt Expense	31,790
	Allowance for Doubtful Accounts		31,790

b. Net accounts receivable for balance sheet:

Accounts Receivable	$ 190,500
Allowance for Doubtful Accounts	34,290
Net Accounts Receivable	$ 156,210