Answer:
(a) If Nash's Trading Post, LLC uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Nash's Trading Post, LLC determines that Matisse’s $829 balance is uncollectible.
Dr Bad Debt Expense $ 829
Cr Accounts receivable Matisse $ 829
(b) If Allowance for Doubtful Accounts has a credit balance of $1,022 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 10% of accounts receivable.
Dr Bad Debt Expense $ 6,138
Cr Allowance for Uncollectible Accounts $ 6,138
(c) If Allowance for Doubtful Accounts has a debit balance of $520 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 8% of accounts receivable.
Dr Bad Debt Expense $ 6,248
Cr Allowance for Uncollectible Accounts $ 6,248
Explanation:
The ledger of Nash's Trading Post, LLC at the end of the current year shows
Dr Accounts receivable $ 71,600
Credit Sales $ 865,890
Sales Returns and Allowances $ 40,600
NET Credit Sales $ 825,290
(a) If Nash's Trading Post, LLC uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Nash's Trading Post, LLC determines that Matisse’s $829 balance is uncollectible.
Dr Bad Debt Expense $ 829
Cr Accounts receivable Matisse $ 829
When direct write off method is applied it cancels bad debts at the time it was decided that the credit is bad, the total amount reported as bad debt expenses negatively affect the income statement and the accounts receivable are reduced by the same amount, which means less assets.
(b) If Allowance for Doubtful Accounts has a credit balance of $1,022 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 10% of accounts receivable.
Dr Bad Debt Expense $ 6.138
Cr Allowance for Uncollectible Accounts $ 6.138
Because the company already has a CREDIT balance ($1,022) in the Allowance for Doubtful Accounts it's necessary to register an entry that complement ($6,138) the existing value and reflect the value estimated as bad debts ($7,160 = $6,138 + $1,022), 10% of Accounts Rec.
(c) If Allowance for Doubtful Accounts has a debit balance of $520 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 8% of accounts receivable.
Dr Bad Debt Expense $ 6.248
Cr Allowance for Uncollectible Accounts $ 6.248
Because the company already has a DEBIT balance ($520) in the Allowance for Doubtful Accounts it's necessary to register an entry that compensate ($6,248) the existing value and reflect the value estimated as bad debts ($6,248 = $5,728 + $520), 8% of Accounts Rec.
