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Nutka1998 [239]
1 year ago
6

The December 31, 2020 balance sheet of Barone Company had Accounts Receivable of $400,000 and a credit balance in Allowance for

Doubtful Accounts of $32,000. During 2021, the following transactions occurred: sales on account $1,500,000; sales returns and allowances, $50,000; collections from customers, $1,250,000; accounts written off $36,000; previously written off accounts of $6,000 were collected.
Business
1 answer:
sergey [27]1 year ago
6 0

Barone Company

General Journal for 2020 transactions:

Debit Accounts Receivable $1,500,000

Credit Sales Revenue $1,500,000

To record sales on account:

Debit Sales Returns $50,000

Credit Accounts Receivable $50,000

To record sales returns and allowances:

Debit Cash Account $1,250,000

Credit Accounts Receivable $1,250,000

To record cash collections from customers:

Debit Allowance for Doubtful Accounts $36,000

Credit Accounts Receivable $36,000

To record uncollectible written-off.

Debit Accounts Receivable $6,000

Credit Allowance for Doubtful Accounts $6,000

To reinstate previously written off accounts.

Debit Cash Account $6,000

Credit Accounts Receivable $6,000

To record collection of previous write-off.

Adjusting Entry at December 31, 2020:

B. Using 3% of net sales:

Debit Bad Debt Expense $41,500

Credit Allowance for Doubtful Accounts $41,500

To record bad debt expense.

C. Using 8% of Receivables:

Debit Bad Debt Expense $43,120

Credit Allowance for Doubtful Accounts $43,1`20

To record bad debt expense.

D. 3% of net sales produces a higher net income and by $1,620

Simplification:

1. Accounts Receivable

Beginning balance (debit) = $400,000

Sales                                     1,500,000

Sales Returns & allowances   (50,000)

Cash Collections                (1,250,000)

Uncollected write-off            (36,000)

Reinstatement of write-off       6,000

Cash Collection                       (6,000)

Ending balance                  $564,000

2. Allowance for Doubtful Accounts

Beginning balance (Credit)   $32,000

Uncollectible write-off            (36,000)

Reinstatement of write-off        6,000

Balance pre-year adjustment $2,000

Using 3% of net sales

Bad debt expense                 $41,500

Ending balance (credit)        $43,500

Balance pre-year adjustment $2,000

Using 8% of receivable balance

Bad debt expense                 $43,120

Ending balance (credit)        $45,120

3. Allowance for Doubtful Accounts (Ending balance)

3% of net sales = $1,450,000 x 3% = $43,500

8% of receivables = $564,000 x8% = $45,120

What Is a Bad Debt Expense?

A bad debt expense is recognized when a receivable is no longer collectible because a customer is unable to fulfill their obligation to pay an outstanding debt due to bankruptcy or other financial problems.

Learn more about bad debt expenses:

brainly.com/question/18568784

#SPJ4

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