Question

The ledger of Tamarisk, Inc. at the end of the current year shows Accounts Receivable $109,000; Sales Revenue $830,000; and Sales Returns and Allowances $23,700. Prepare journal entries for each separate scenario below. (a) If Tamarisk, Inc. uses the direct write-off method to account for uncollectible accounts, journalize the entry at December 31, assuming Tamarisk, Inc. determines that L. Dole’s $1,500 balance is uncollectible. (b) If Allowance for Doubtful Accounts has a credit balance of $2,500 in the trial balance, journalize the adjusting entry at December 31, assuming uncollectible accounts are estimated to be 11% of accounts receivable. (c) If Allowance for Doubtful Accounts has a debit balance of $205 in the trial balance, journalize the adjusting entry at December 31, assuming uncollectible accounts are estimated to be 9% of accounts receivable.

Answer 1

Answer:

(A)

bad debt expense 1,500 debit

account receivable 1,500 credit

(B)

bad debt expense 9,490

allowance for doubtful accounts 9,490

(C)

bad debt expense 10,015

allowance for doubtful accounts 10,015

Explanation:

(A)

Direct write-off doesn't use allowance,

bad debt is done directly to account receivable.

(B)

allowance = 11% of AR = 11% of 109,000 = 11,990

                                             balance (2,500 credit)

11,990 - 2,500 = 9,490

(C)

allowance = 9% of AR = 9% of 109,000 = 9810

                                                         balance 205 debit

9,810 + 205 = 10,015

Comments: the allowance is expected to be 9% or 11% of AR

so the goal for B and C is to reach a final balance of 9% or 11% of AR

so we have to subtract the balance from the expected allowance to knwo the adjustment.