Problem 7-6 The balance sheet of Starsky Company at December 31, 2013, includes
ID: 2480173 • Letter: P
Question
Problem 7-6 The balance sheet of Starsky Company at December 31, 2013, includes the following. Notes receivable Accounts receivable Less: Allowance for doubtful accounts $36,000 182,100 17,300 $200,800 Transactions in 2014 include the following. I. 2. 3. 4. Accounts receivable of $138,000 were collected including accounts of $60,000 on which 2% sales discounts were allowed $5,300 was received in payment of an account which was written off the books as worthless in 2013. Customer accounts of $17,500 were written off during the year. At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $20,000. This estimate is based on an analysis of aged accounts receivable. Prepare all journal entries necessary to reflect the transactions above. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)Explanation / Answer
1. Cash Dr $136800
Discount Dr $1200
To Accounts Receivable $138000
(Being Accounts receivable collected in cash)
2. Accounts receivable Dr $5300
To Allowance for bad debts $5300
(Accounts receivable reinstated)
Cash Dr $5300
To Accounts Receivable $5300
(Accounts receivable collected)
3. Bad Debt Expense Dr $17500
To Accounts Receivabe $17500
(Being Accounts receivable written off)
4. Allowance for bad debt Dr $2600
To Bad Debt Expense $2600
(Allowance for bad debts balance reduced to $20000)
#Since nad debts of $5300 were recovered, balance in allowance for bad debts accounts was $17300 + 5300 = $22600. The same had to be reduced by $2600 to maintain the balance of $20000.