Question

At December 31, 2019, the trial balance of Skysong Company contained the following amounts before adjustment Debit Credit Accounts Receivable Allowance for Doubtful Accounts Sales Revenue $394,000 1,200 901,000 Based on the information given, which method of accounting for bad debts is Skysong Company using-the direct write-off method or the allowance method? (b) Prepare the adjusting entry at December 31, 2019, for bad debt expense, assuming an aging schedule indicates that $10,900 of accounts receivable will be uncollectible. (c) Repeat part (b) assuming that instead of a credit balance there is an $1,200 debit balance in Allowance for Doubtful Accounts. (d) During the next month, January 2020, a $2,800 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off. (e Repeat part (d) assuming that Skysong uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.

Answer 1

Answer:

(a) Based on the information given, which method of accounting for bad debts is Skysong Company using-the direct write-off method or the allowance method?

• allowance method since allowance account has a $1,200 credit balance

(b) Prepare the adjusting entry at December 31, 2019, for bad debt expense, assuming an aging schedule indicates that $10,900 of accounts receivable will be uncollectible.

• Dr bad debt expense 9,700
•     Cr Allowance for doubtful accounts 9,700

bad debt expense = $10,900 - $1,200 = $9,700

(c) Repeat part (b) assuming that instead of a credit balance there is an $1,200 debit balance in Allowance for Doubtful Accounts.

• Dr bad debt expense 12,100
•     Cr Allowance for doubtful accounts 12,100

bad debt expense = $10,900 + $1,200 = $12,100

(d) During the next month, January 2020, a $2,800 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off.

• Dr Allowance for doubtful accounts 2,800
•     Cr Accounts receivable 2,800

(e Repeat part (d) assuming that Skysong uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.

• Dr Bad debt expense 2,800
•     Cr Accounts receivable 2,800

When you use the direct write off method, bad debt is debited against accounts receivable directly.