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. Percentage of sales method

Date	General Journal	Debit	Credit
Dec 31	Allowances for uncollectible accounts	$9500
	Accounts Receivable		$9500
Dec 31	Bad Debt Expense (600000 * 4%)	24000
	Allowances for uncollectible accounts		$24000

2. Final Balances

Accounts Receivable (200000 - 9500)	$190500
Allowance for Doubtful accounts (12000 - 9500 + 24000)	$26500

3. Net Accounts Receivable = Accounts Receivable - Allowance for doubtful accounts = $190500 - 26500 = $164000

4.a.

Date	General Journal	Debit	Credit
Dec 31	Bad Debt Expense ((200000-9500)*18%-3000)	$31790
	Allowance for Doubtful Accounts		$31790

b.

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