Question

Please show work

1. Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the aging method to account for bad debts expense. It has calculated an amount of $200 as its estimate of uncollectible amounts at year-end. Prepare the journal entry required to record Bad debts expense at the end of the year.

2. On October 1, 2015, Zircon Jewelry Company accepted a 4-month, 10% note for $2,400 in settlement of an overdue account receivable. Interest revenue was accrued through December 31, 2015. Zircon receives the maturity value of the note on the due date. Give journal entry to record the collection of funds.

Answer 1

Solution 1:

Required balance in allowance for doubtful accounts at year end = $200

Existing balance in allowance for doubtful accounts = $650 debit

Bad debt expense to be recorded at the end of year = $200 + $650 = $850

Journal Entries - Smart Art
Event	Particulars	Debit	Credit
1	Bad debts expense Dr	$850.00
	To Allowance for doubtful accounts		$850.00
	(To record bad debts expense for the year)

Solution 2:

Journal Entries - Zircon Jewellery
Date	Particulars	Debit	Credit
31-Jan-16	Cash Dr	$2,480.00
	To Note receivables		$2,400.00
	To Interest receivables ($2,400*10%*3/12)		$60.00
	To Interest revenue ($2,400*10%*1/12)		$20.00
	(To record note collection at due date)