Question

Shore Co. provides for doubtful accounts based on 4% of credit sales. The following data are available for 2014.

Answer 1

Answer:

The balance in Allowance for Doubtful Accounts at December 31, 2014 is $96,916 and the required bad debt expense is $101,116, journalized as follows:

Debit Bad debt expense                                    $101,116

Credit Allowance for doubtful accounts           $101,116

(To record bad debt expense for the year)

Explanation:

Let's journalize the transactions that occurred in 2014 as follows:

Debit Accounts receivable                           $2,422,900

Credit Sale revenue                                      $2,422,900

(To record sales on account)

Debit Accounts receivable                                   $9,200

Credit Allowance for doubtful accounts              $9,200

(To re-eastblish sales on account previously written off)

Debit Cash                                                             $9,200

Credit Accounts receivable                                  $9,200

(To record collections on account previously written off)

Debit Allowance for doubtful accounts               $31,500

Credit Accounts receivable                                  $31,500

(To write-off accounts receivable that is uncollectible)

Since Shore Co. adopts 4% of credit sales. This translates to 4% x $2,422,900 = $96,916. The effects of the journals above on the opening balance of the allowance for doubtful accounts is $18,100 + $9,200 - $31,500 = $4,200 (debit). Bad debt expense is therefore $101,116 ($4,200 + $96,916).