Question

Wasson, Inc. uses the allowance method to account for uncollectibles. On December 31, it had the following items in its unadjusted trial balance:

   Debit              Credit

Cash sales                                                                  $ 88 000

Credit sales                                                                 208 000

Accounts receivable                        $ 102 000                       

Allowance for doubtful accounts                                   1 050

Part A:

Required: Prepare the adjusting entry to record the estimate of bad debts assuming the company estimates bad debts to be 10% of total credit sales.

Part B:

On March 1, management decided that the $1,000 account of J. Smith was uncollectible and wrote it off as a bad debt.

Required: Prepare the appropriate entry for March 1.

Part C:
On August 15, J. Smith paid the amount previously written off.
Required: Prepare the appropriate entry or entries for August 15.

Answer 1

a.

Journal

Date	Account Title and Explanation	Debit	Credit
Dec 31	Bad debt expense	20,800
	Allowance for doubtful account		20,800
	(To record Bad debt expense)

b.

Journal

Date	Account Title and Explanation	Debit	Credit
March 1	Allowance for doubtful account	1,000
	Accounts receivable - J. Smith		1,000
	(To write off accounts receivable of J. Smith)

c.

Journal

Date	Account Title and Explanation	Debit	Credit
Aug 15	Accounts receivable - J. Smith	1,000
	Allowance for doubtful account		1,000
	(To re-instate the account of J. smith)
Aug 15	Cash	1,000
	Accounts receivable - J. Smith		1,000
	(To record cash received from J. smith)

Bad debt expense = 10% of credit sales

= 208,000 x 10%

= $20,800