Question

The Accounts Receivable balance for Lake​, Inc. at December​ 31, 2017​, was $ 20 comma 000. During 2018​, Lake earned revenue of $ 454 comma 000 on account and collected $ 325 comma 000 on account. Lake wrote off $ 5 comma 600 receivables as uncollectible. Industry experience suggests that uncollectible accounts will amount to 5​% of accounts receivable. Read the requirementsRequirement 1. Assume Lake had an unadjusted $ 2 comma 700 credit balance in Allowance for Bad Debts at December ​31, 2018. Journalize Lake​'s December ​31, 2018​, adjustment to record bad debts expense using the​ percent-of-receivables method.

Answer 1

Answer:

The required journals are:

Debit Bad debt expense                                          $10,070

Credit Allowance for doubtful accounts                 $10,070

(To record bad debt for the year)

Explanation:

To understand the effects of the transactions, we need to journalize as follows:

Debit Accounts receivable                                    $454,000

Credit Sales revenue                                             $454,000

(To record sales transaction on account)

Debit Cash                                                             $325,000

Credit Accounts receivable                                  $325,000

(To record collections on account)

Debit Allowance for doubtful accounts                   $5,600

Credit Accounts receivable                                     $5,600

(To record write-off of accounts receivable)

With the above journals, the balance in accounts receivable will be: $20,000 + $454,000 - $325,000 - $5,600 = $143,400. The 5% of $143,400 will be $7,170.

The effect of the write-off was to throw the unadjusted allowance for doubtful account into debit as $2,700 - $5,600 = $2,900. The required bad debt expense will $10,070 ($7,170 + $2,900).