Question

During the current year, Bob’s Ceramics Shop had sales revenue of $158,000, of which $68,000 was on credit. At the start of the current year, Accounts Receivable showed a $20,000 debit balance and the Allowance for Doubtful Accounts showed a $1,400 credit balance. Collections of accounts receivable during the current year amounted to $55,000. Data during the current year follow: a. On December 31, an Account Receivable (Toby’s Gift Shop) of $1,700 from a prior year was determined to be uncollectible; therefore, it was written off immediately as a bad debt. b. On December 31, on the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2.0 percent of credit sales for the year. Required: 1. Prepare the required journal entries for the two items on December 31, end of the accounting period. 2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for the current year. Disregard income tax considerations.

Answer 1

1.)	S.No.	Date	Account Titles	Debit $	Credit $
	a.	December 31.	Allowance for Doubtful Accounts	1,700
			Accounts Receivable		1,700
	b.	December 31.	Bad Debt Expense	1,360
			Allowance for Doubtful Accounts		1,360
			(68,000 x 2% )

2.)	Income Statement	Amount $
	Bad Debt Expense	1,360
	Balance Sheet	Amount $
	Accounts Receivable	31,300	=20000+68000-55000-1700
	Less: Allowance for Doubtful accounts	1,060	=1400-1700+1360
	Net Accounts Receivable	30,240