Chapter 8, Problem 8.1CP

Recording Accounts Receivable Transactions Using Two Estimation Methods

The A.T. Cross Company is well known for its Cross pens. The company recently reported the following amounts in its unadjusted trial balance as of December 31.

	Debits	Credits
Accounts Receivable	$30,691,000
Allowance for Doubtful Accounts		$ 952,000
Sales Revenue		158,312,000

Required:

1. 1. Assume Cross uses ¼ of 1 percent of sales to estimate its bad debt expense for the year. Prepare the adjusting journal entry required at December 31 for recording Bad Debt Expense.

   TIP: The percentage of credit sales method directly calculates Bad Debt Expense.

2. 2. Assume instead that Cross uses the aging of accounts receivable method and estimates that $1,007,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at December 31 for recording bad debt expense.

   TIP: The aging of accounts receivable method focuses on calculating what the adjusted Allowance for Doubtful Accounts balance should be. You need to consider the existing balance when determining the adjustment.

3. 3. Repeat requirement 2, except this time assume the unadjusted balance in Cross’s Allowance for Doubtful Accounts at December 31 was a debit balance of $ 10,050.
4. 4. If one of Cross’s main customers declared bankruptcy, what journal entry would be used to write off its $10,000 balance?