Question

Exercise 5-7B Establish an allowance for uncollectible accounts and write off accounts receivable (LO5-3, 5-4)

During Year 1, its first year of operations, a company provides services on account of $142,000. By the end of Year 1, cash collections on these accounts total $101,000. The company estimates that 25% of the uncollected accounts will be uncollectible. In Year 2, the company writes off uncollectible accounts of $9,225.

Required:

1. Record the adjusting entry for uncollectible accounts on December 31, Year 1. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

   

2-a. Record the write-off of accounts receivable in Year 2. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

2-b. Calculate the balance of Allowance for Uncollectible Accounts at the end of Year 2 (before adjustment in Year 2).

3-a. Assume the same facts as above but assume actual write-offs in Year 2 were $14,760. Record the write-off of accounts receivable in Year 2. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

3-b. Assume the same facts as above but assume actual write-offs in Year 2 were $14,760. Calculate the balance of Allowance for Uncollectible Accounts at the end of Year 2 (before adjustment in Year 2).

Answer 1

1.

Date	Account title	Debit	Credit
Dec 31, Year 1	Baddebt expenses (($142,000-$101,000)*25%)	$ 10,250
	Allowance for doubtful accounts		$ 10,250
	(To record baddebt expenses)

2a.

Date	Account title	Debit	Credit
Year 2	Allowance for doubtful accounts	$    9,225
	Accounts Receivable		$    9,225
	(To record write off )

2b.

Balance in allowance for uncollectible account ($10,250-$9,225)

$ 1,025

Credit

3a.

Date	Account title	Debit	Credit
Year 2	Allowance for doubtful accounts	$ 14,760
	Accounts Receivable		$ 14,760
	(To record write off )

3b.

Balance in allowance for uncollectible account ($10,250-$14,760)

$ 4,510

Debit

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