Question

The ledger of Marin Inc. at the end of the current year shows Accounts Receivable $86,000; Credit Sales $800,000; and Sales Returns and Allowances $44,000. (a) If Marin uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Marin determines that Matisse’s $700 balance is uncollectible. (b) If Allowance for Doubtful Accounts has a credit balance of $1,300 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 10% of accounts receivable. (c) If Allowance for Doubtful Accounts has a debit balance of $450 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 8% of accounts receivable.

Answer 1

Answer:

(A) direct write-off method directly decreases accounts receivables:

bad debt expense 700 debit

       accounts receivables      700 credit

(B) allowance method we don't use A/R

bad debt expense   82,900 debit

Allowance for Doubtful Accounts   82,900 credit

(C)

bad debt expense   67,810 debit

Allowance for Doubtful Accounts   67,810 credit

Explanation:

Accounts receivables before adjustment / gross receivables

86,000 + 800,000 credit sales - 44,000 returns and allowance = 842,000

(B)

estimates 10% bad debt: 84,200

current balance:                (1,300 )

adjusting entry:                82,900

(C)

estimated 8% of A/R: 842,000 x 8% = 67,360

current balance:                                        450  

adjusting entry:                                       67,810