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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Reconstructing Accounts Receivable and Expense Journal Entries The 2020 audit of Lane Company’s accounting records discloses the following information:

Chapter 6, Problem 8P, Reconstructing Accounts Receivable and Expense Journal Entries The 2020 audit of Lane Companys

Required:

  1. 1. Next Level Reconstruct the journal entries that were made by Lane during 2020 to record changes in the following accounts, assuming sales returns anti allowance's are estimated in the period of sale and the net price method is used to account for sales discounts.
    1. a. Allowance for Doubtful Accounts
    2. b. Accounts Receivable
  2. 2. What is the 2020 ending balance in each of the accounts in Requirement 1, and how will it be reported on Lane’s 2020 financial statements?

1.

To determine

Prepare the journal entry to record the changes in the following accounts by assuming that sales return and allowance are estimated in the period of sale and net price method are used for accounting the sales discount.

(a) Allowance for doubtful accounts.

(b) Accounts receivable

Explanation

Account receivable:

The amount of money to be received by a company for the sale of goods and services to the customers is referred to as account receivable.

(a) Allowance for doubtful accounts:

To decrease the allowance for the doubtful debts by $400 ($7,400$7,000) the following journal entries must be made:

DateAccount Titles and explanationDebit ($)Credit ($)
 Allowance for doubtful accounts7,900 
      Accounts receivable (1) 7,900
 (To record the accounts receivable write off during the year.)  

Table (1)

  • Allowance for doubtful accounts is a contra asset and there is an increase in the value of asset. Hence, debit the allowance for doubtful accounts by $7,900.
  • Accounts receivable is an asset and there is a decrease in the value of asset. Hence, credit the accounts receivable by $7,900.
DateAccount Titles and explanationDebit ($)Credit ($)
 Bad debt expense7,500 
      Allowance for doubtful accounts 7,500
 (To record the bad debt  expense recorded  during the year)  

Table (2)

  • Bad debt expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the bad debt expense by $7,500.
  • Allowance for doubtful accounts is a contra asset and there is a decrease in the value of asset. Hence, credit the allowance for doubtful accounts by $7,500.

Working notes:

(1) Calculate the accounts receivable to be written off during the year.

Accounts receivable written  off  during the year} = (Allowance for doubtful debts 2019+Estimated debts for the year 2020)=$7,400+$7,500=$7,900

(b) Accounts receivable:

To decrease accounts receivable by $2,600 ($183,400$186,000

2.

To determine

Indicate the ending balance for 2020 for the following accounts in requirement 1 and also specify the manner by which these items will be reported in the financial statement.

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