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Rogan Company’s total sales on account for the year amounted to $327,000. The company, which uses the allowance method, estimated bad debts at 1 percent of its credit sales. Required Journalize the following selected entries: 2012 Dec. 31 Record the adjusting entry. 2013 Mar. 2 Write off the account of A. M. Billson as uncollectible, $584. June 6 Write off the account of W. H. Gilders as uncollectible, $492. Check Figure Adjusting entry amount, $3,270

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College Accounting (Book Only): A ...

12th Edition
Cathy J. Scott
Publisher: Cengage Learning
ISBN: 9781305084087
BuyFind

College Accounting (Book Only): A ...

12th Edition
Cathy J. Scott
Publisher: Cengage Learning
ISBN: 9781305084087

Solutions

Chapter
Section
Chapter B, Problem 1P
Textbook Problem

Rogan Company’s total sales on account for the year amounted to $327,000. The company, which uses the allowance method, estimated bad debts at 1 percent of its credit sales.

Required

Journalize the following selected entries:

2012

Dec. 31 Record the adjusting entry.

2013

Mar. 2 Write off the account of A. M. Billson as uncollectible, $584.

June 6 Write off the account of W. H. Gilders as uncollectible, $492.

Check Figure

Adjusting entry

amount, $3,270

Expert Solution
To determine

Prepare the journal entries for Company R.

Explanation of Solution

Allowance method of accounting for bad debts expense: This is the accounting method used to estimate the bad debts based on an estimated percentage of credit sales, and recognize the bad debts expense in the same period the products are sold on account (period in which accounts receivables is created for).

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

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare the journal entries for Company R.

Transaction on December 31, 2012:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2012    
December31Bad Debts Expense 3,270 
    Allowance for Doubtful Accounts  3,270
  (Record uncollectible accounts expense)   

Table (1)

Description:

  • Bad Debts Expense is an expense account. Since expenses and losses decrease the equity and an increase in equity is debited, so, Bad Debts Expense account is debited.
  • Allowance for Doubtful Accounts is a contra-asset account to Accounts Receivable account. The contra-asset accounts decrease the asset value, and a decrease in asset is credited.

Working Notes:

Compute bad debts expense.

Bad debts expense = Credit sales×Uncollectible percentage=$327,000×1%=$3,270

Transaction on March 2, 2013:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2013    
March2Allowance for Doubtful Accounts 584 
    Accounts Receivable  584
  (Record the write off of accounts receivable that is worthless)   

Table (2)

Description:

  • Allowance for Doubtful Accounts is a contra-asset account to Accounts Receivable account. The account is debited to write off the receivable and reverse the effect of allowance value of the doubtful account which was previously credited.
  • Accounts Receivable is an asset account. Since the receivable is written off, the value of asset is decreased, and a decrease in asset is credited.

Transaction on June 6, 2013:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
2013    
June6Allowance for Doubtful Accounts 492 
    Accounts Receivable  492
  (Record the write off of accounts receivable that is worthless)   

Table (3)

Description:

  • Allowance for Doubtful Accounts is a contra-asset account to Accounts Receivable account. The account is debited to write off the receivable and reverse the effect of allowance value of the doubtful account which was previously credited.
  • Accounts Receivable is an asset account. Since the receivable is written off, the value of asset is decreased, and a decrease in asset is credited.

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