Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 8: 8SE (page 467)

Applying the allowance method (aging-of-receivables) to account for Uncollectibles Surf and Sun had the following balances at December 31, 2018, before the year-end adjustments:

Accounts Receivable

81,000

Allowance for Bad Debts

Bal. \( 2,063

The aging of accounts receivable yields the following data:

Age of Accounts Receivable

0–60 Days

Over 60 Days

Total Receivables

Accounts Receivable

\) 78,000

\( 3,000

\) 81,000

Estimated percent uncollectible

*2%

* 23%

Requirements

1. Journalize Surf and Sun’s entry to record bad debts expense for 2018 using the aging-of-receivables method.

2. Prepare a T-account to compute the ending balance of Allowance for Bad Debts.

Short Answer

Expert verified

(1) Bad debts will be debited, and allowance for bad debts will be credited by $187, respectively.

(2) Ending balance for allowance for bad debts equals $2,250.

Step by step solution

01

Definition of Aging-of-receivables:

Aging-of-receivables method computes bad debts expense by applying a different percentage for each aging category of accounts receivable.

02

Journalize the transactions of Lake

BadDebtsExpense=Uncollectibleof0-60Days+Uncollectibleofover60days-UnadjustedBalance=$78,200×2%+$3,000×23%-$2,063=2,250-$2,063=$187

Date

Account and explanation

Debit

Credit

2018

Bad Debts

$187

Allowance for Bad Debts

$187

(Recording of bad debts expense for the period)

03

T-account of the ending balance of Allowance for Bad Debts

Allowance for Bad Debts

$2,063

Beg. Balance

$187

Adj.

$ 2,250

End. Balance

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Journalizing note receivable transactions

The following selected transactions occurred during 2018 and 2019 for Baltic Importers. The company ends its accounting year on September 30.

2018

Jul. 1

Loaned \(16,000 cash to Bud Shyne on a one-year, 8% note.

Sep. 6

Sold goods to Lawn Pro, receiving a 90-day, 6% note for \)11,000. Ignore Cost of Goods Sold.

30

Made a single entry to accrue interest revenue on both notes.

?

Collected the maturity value of the Lawn Pro note.

2019

Jul. 1

Collected the maturity value of the Shyne note.

Journalize all required entries. Make sure to determine the missing maturity date. Round to the nearest dollar

On June 1, 2018, Best Performance Cell Phones sold \(21,000 of merchandise to Anthony Trucking Company on account. Anthony fell on hard times and on July 15 paid only \)5,000 of the account receivable. After repeated attempts to collect, Best Performance finally wrote off its accounts receivable from Anthony on September 5. Six months later, on March 5, 2019, Best Performance received Anthony’s check for $16,000 with a note apologizing for the late payment.

Requirements

1. Journalize the transactions for Best Performance Cell Phones using the direct write-off method. Ignore Cost of Goods Sold.

2. What are some limitations that Best Performance will encounter when using the direct write-off method?

What occurs when a business pledges its receivables?

What is the difference between the percent-of-receivables and aging-of-receivables methods?

At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:

a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.

b. Collections on account, \)135,000.

c. Write-offs of uncollectible receivables, $2,300.

Requirements

1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.

2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 3% of credit sales. Post the adjustment to the appropriate T-accounts.

4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet.
See all solutions

Recommended explanations on Business Studies Textbooks

Operational Management

Read Explanation

Change Management

Read Explanation

Organizational Behavior

Read Explanation

Organizational Communication

Read Explanation

Business Case Studies

Read Explanation

Managerial Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free