Question

Johnson Company calculates its allowance for uncollectible accounts as 5% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $30,000 at the beginning of 2021. No previously written-off accounts receivable were reinstated during 2021. At 12/31/2021, gross accounts receivable totaled $500,100, and prior to recording the adjusting entry to recognize bad debts expense for 2021, the allowance for uncollectible accounts had a debit balance of 55,000.

Answer 1

Answer:

• Assuming 5% of accounts receivable, the journal entry:

Dr Bad Debt Expense

Cr Allowance for Uncollectible Accounts

Explanation:

If the company applies the allowance method, it means that the account  

Allowance for Uncollectible Accounts must show as balance the  5% of accounts receivables as CREDIT.

Because the company has a debit balance in that account it's necessary to register an entry  that compensate the DEBIT value and reflect A CREDIT estimated as 5% of account receivable.

• Allowance for uncollectible accounts 5% of its ending balance in gross accounts receivable  

• Initial Balance  

Dr Accounts Receivable                            $ 500,100

Dr Allowance for Uncollectible Accounts  $ 55,000

• Assuming 5% of accounts receivable, the journal entry:  

Dr Bad Debt Expense $ 80,005  

Cr Allowance for Uncollectible Accounts  $ 80,005

• FINAL Balance  

Dr Accounts Receivable  $ 500,100  

Cr Allowance for Uncollectible Accounts  $ 25,005

If the company applies the allowance method, it means that the account  

Allowance for Uncollectible Accounts must show as balance the  5% of accounts receivables as CREDIT.

Because the company has a debit balance in that account it's necessary to register an entry  that compensate the DEBIT value and reflect A CREDIT estimated as 5% of account receivable.