Answer:
Obermeyer Imports
a) Journal Entries to record each transaction:
1. Debit Accounts Receivable $2,600,000
Credit Sales Revenue $2,600,000
To record the sale of goods on account.
2. Debit Sales Returns $45,000
Credit Accounts Receivable $45,000
To record the return of goods on account.
3. Debit Cash Account $2,250,000
Credit Accounts Receivable $2,250,000
To record collections from customers.
4. Debit Uncollectible Expenses $10,000
Credit Accounts Receivable $10,000
To record the write-off of accounts deemed uncollectible.
5. Debit Cash Account $3,000
Credit Uncollectible Expenses $3,000
To record the recovery of bad debts previously written off.
b) T-accounts:
Accounts Receivable
Accounts Titles Debit Credit
Beginning balances $250,000
Sales Revenue 2,600,000
Sales Returns 45,000
Cash Account 2,250,000
Uncollectible Expenses 10,000
Ending Balances 545,000
Total $2,850,000 $2,850,000
Allowance for doubtful accounts
Accounts Titles Debit Credit
Beginning balances $15,000
Uncollectible expense 7,000
Ending balances $22,000
c) Journal Entry
Debit Uncollectible Expense $7,000
Credit Allowance for doubtful accounts $7,000
To record the allowance for uncollectibles.
Explanation:
a) Data and Calculations:
Accounts receivable $250,000
Less: Allowance for doubtful accounts 15,000
b) The allowance for Doubtful Accounts will increase by $7,000 to $22,000. As a result, the Uncollectible Expense will be debited with $7,000 while the Allowance for doubtful accounts will be credited with $7,000. This brings the total of Allowance for Doubtful Accounts to $22,000 in accordance with the new estimate based on the aging of accounts receivable.
