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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Estimating Bad Debts from Receivables Balances The following information is extracted from Shelton Corporation’s accounting records at the beginning of 2019:

Chapter 6, Problem 9E, Estimating Bad Debts from Receivables Balances The following information is extracted from Shelton

During 2019, sales on credit amounted to $575,000, $557,400 was collected on outstanding receivables and $2,600 of receivables were written off as uncollectible. On December 31, 2019, Shell on estimastes its bad debts to be 4% of the outstanding gross accounts receivable balance.

Required:

  1. 1. Prepare the journal entry necessary to record Shelton’s estimate of bad debt expense for 2019.
  2. 2. Prepare the Accounts Receivable section of Shelton's December 31, 2019, balance sheet.
  3. 3. Compute Shelton's receivables turnover. (Round to one decimal place.)
  4. 4. It Sheldon uses IFRS, what might be the heading for the accounts receivable section in Requirement 2?

1.

To determine

Record the journal entry to estimate the bad debt expense.

Explanation

Bad debt expense:

Bad debt expense is an expense account. Amount of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, estimated uncollectible accounts receivable are known as bad debt expense. To match the revenues and expenses, bad debts (loss on extending credit) are recorded as expenses.

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Journal entry:

Journal entry is a “set of economic events” which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains

Record the journal entry:

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 Bad debt expense (2)4,320 
  Allowance for doubtful accounts 4,320 
 ( To record the bad debt expense)  

Table (1)

  • An increase in bad debt expense (decrease in stockholders’ equity account) is debited with $4,320.
  • An increase in allowance for doubtful accounts (contra asset account) is credited with $4,320...

2.

To determine

Prepare the accounts receivable’s section of Corporation S.

3.

To determine

Calculate the receivables turnover ratio.

4.

To determine

State the heading for the accounts receivable section in requirement 2, if Corporation S uses IFRS.

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