Question

The ledger of Kingbird, Inc. at the end of the current year shows Accounts Receivable $112,000; Sales Revenue $833,000; and Sales Returns and Allowances $20,000. Prepare journal entries for each separate scenario below.

Answer 1

Answer:

The ledger of Kingbird, Inc.

Journal Entries

1) Accounts Receivable  $112,000 Dr.

Sales  $ 112,000 Cr.

For Sales on Credit

2) Cash $ 833,000 Dr.

 Accounts Receivable  $833,000 Cr.

For Cash received from the debtors.

3) Sales Returns and Allowances $ 20,000Dr.

Accounts Receivable  $2,0000 Cr.

For sales returned on credit.

If it were cash Sales the entry would be

3) Sales Returns and Allowances $ 20,000Dr.

Cash   $2,0000 Cr.

Refunds would have been made.

Answer 2

Answer:

A)

bad debt expense 1,400 debit

       accounts receivable   1,400 credit

B) using percentage of net sales:

bad debt expense 8,130 debit

allowance for Doubtful Accounts 8,130 credit

using percentage of account receivables

bad debt expense 9,100 debit

allowance for Doubtful Accounts 9,100 credit

C)   using percentage of net sales:

bad debt expense  6,097.5 debit

allowance for Doubtful Accounts  6,097.5 credit

using percentage of account receivables

bad debt expense  6,920  debit

allowance for Doubtful Accounts  6,920  credit

Missing Information (the separate scenarios the questions refers but omits)

A) If Kingbird uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Costello determines that L. Dole’s $1,400 balance is uncollectible.

B) If Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable

C) If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable

Explanation:

A)

under direct method we directly decrease account receivable against ba debt expense

B)

1% of net sales:

833,000 - 20,000 = 813,000 net sales

813,000 x 1% = 8,130

10% of accounts receivables 112,000 x 10% = 11,200

current balance: 2,100 adjustment needed: 11,200 - 2,100 = 9,100

C)

0.75% of net sales

813,000 x 0.75% = 6,097.5

6% of account receivables

112,000 x 6% = 6,720

current balance 200 debit

total adjustment 6,920