Assuming that Thurmond Company\'s sales are credit sales and it\'s practice to p
ID: 2434359 • Letter: A
Question
Assuming that Thurmond Company's sales are credit sales and it's practice to provide for uncollectible accts. expense at a rate of 1/2 of 1% (.005?). Last year company's net credit sales were $2,021,000 and Allowance for Doubtful Accts. acct. had credit balance, before adjustments, of $630 as of December 31, 20X1. During this current year (20X2)following transactions occurred: Jan. 20-acct. of H. Scott, deceased customer owed $325, was determined uncollectible and written off. Mar. 16-informed that A. Nettles, customer, declared bankruptcy. His acct. for $898 was written off. Apr. 23-$906 acct. of J. Kenney was written off as uncollectible. Aug. 3-Wrote off as uncollectible the $750 acct. of Clarke Company Oct. 20-Wrote off uncollectible $1,130 acct. of G. Michael Oct. 27-Received check for $325 from estate of H. Scott. This amt. was previously written off on Jan. 20 of current year. Dec. 20-Cater Company paid $7,000 of the $7,500 owed to Thurmond Company. Since Cater Company was going out of business, $500 balance was deemed uncollectible and written off. I need to prepare journal entries for Dec. 31, 20X1 and these seven transactions, also the T-accounts. Then I need to know which entries should have been made on December 31, 20X1? My figures are coming up in the 11,000's but it needs to be either 9,475 or 10,105 for the Uncollectible Accts. Expense and Allowance for Doubtfuls Accts. Accts. Then I need to figure out the balance in the Allowance for Doubtful Accts. acct. after all 20X2 transactions are posted but prior to final adjustments. My answers for this part come up in either the $4,000's or $5,800's. These also are wrong. I have been stuck on this for a long time. I have read the material several times, tried the math repeatedly and I'm just not getting it. Can someone please help me. Either tell me how to figure it out or show me please. Assuming that Thurmond Company's sales are credit sales and it's practice to provide for uncollectible accts. expense at a rate of 1/2 of 1% (.005?). Last year company's net credit sales were $2,021,000 and Allowance for Doubtful Accts. acct. had credit balance, before adjustments, of $630 as of December 31, 20X1. During this current year (20X2)following transactions occurred: Jan. 20-acct. of H. Scott, deceased customer owed $325, was determined uncollectible and written off. Mar. 16-informed that A. Nettles, customer, declared bankruptcy. His acct. for $898 was written off. Apr. 23-$906 acct. of J. Kenney was written off as uncollectible. Aug. 3-Wrote off as uncollectible the $750 acct. of Clarke Company Oct. 20-Wrote off uncollectible $1,130 acct. of G. Michael Oct. 27-Received check for $325 from estate of H. Scott. This amt. was previously written off on Jan. 20 of current year. Dec. 20-Cater Company paid $7,000 of the $7,500 owed to Thurmond Company. Since Cater Company was going out of business, $500 balance was deemed uncollectible and written off. I need to prepare journal entries for Dec. 31, 20X1 and these seven transactions, also the T-accounts. Then I need to know which entries should have been made on December 31, 20X1? My figures are coming up in the 11,000's but it needs to be either 9,475 or 10,105 for the Uncollectible Accts. Expense and Allowance for Doubtfuls Accts. Accts. Then I need to figure out the balance in the Allowance for Doubtful Accts. acct. after all 20X2 transactions are posted but prior to final adjustments. My answers for this part come up in either the $4,000's or $5,800's. These also are wrong. I have been stuck on this for a long time. I have read the material several times, tried the math repeatedly and I'm just not getting it. Can someone please help me. Either tell me how to figure it out or show me please.Explanation / Answer
Hey Cassie , This is the Income Statement Approach remember. Hence , previous balances do not affect the Bad Debt Expense. Your first point is absolutely correct. It is 0.005 Of Credit sales. Since Credit Sales are$ 2,021,000, Bad Debt Expense would be 2,021,000 * 0.005 which is nothing but $10,105. So your first part of the doubt is cleared. The journal entry for this would be : Bad Debt Expense 10,105 Allowance for Doubtful Accounts 10,105 The Allowance for Doubtful Accounts would show a balance of 10,105 + 630 = 10,735 Now for the journal entries For all the accounts that have been written off , you can pass a single entry Uncollectible Accounts 4509 Accounts Receivable 4509 For the transaction dated Oct 27th , the following two entries have to be passed Accounts Receivable 325 Uncollectible Accounts 325 Cash 325 Accounts Receivable 325