BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

Solutions

Chapter
Section
BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
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:

2017

Dec.    31 Record the adjusting entry.

2018

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

To determine

Prepare the journal entries for Company R.

Explanation

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, 2017:

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
2017        
December 31 Bad 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, 2018:

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
2018        
March 2 Allowance 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, 2018:

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
2018        
June 6 Allowance 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.

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Chapter B Solutions

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

How does the rate of population growth influence the level of GDP per person?

Brief Principles of Macroeconomics (MindTap Course List)

IRR Refer to Problem 11-1. What is the projects IRR?

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Find all the answers to your study problems with bartleby.
Textbook solutions plus Q&A. Get As ASAP arrow_forward