Delta Watches completed the following selected transactions during 2018

and 2019:2018

Dec. 31 Estimated that bad debts expense for the year was 2% of credit sales of

\(450,000 and recorded that amount as expense. The company uses the

allowance method.

31 Made the closing entry for bad debts expense.

2019

Jan. 17 Sold merchandise inventory to Mack Smith, \)400, on account. Ignore Cost of

Goods Sold.

Jun. 29 Wrote off Mack Smith’s account as uncollectible after repeated efforts to

collect from him.

Aug. 6 Received \(400 from Mack Smith, along with a letter apologizing for being so

late. Reinstated Smith’s account in full and recorded the cash receipt.

Dec. 31 Made a compound entry to write off the following accounts as uncollectible:

Cam Carter, \)1,400; Mike Venture, \(1,200; and Russell Reeves, \)400.

31 Estimated that bad debts expense for the year was 2% on credit sales of

\(510,000 and recorded the expense.

31 Made the closing entry for bad debts expense.

Requirements

1. Open T-accounts for Allowance for Bad Debts and Bad Debts Expense, assuming

the accounts begin with a zero balance. Record the transactions in the general journal

(omit explanations), and post to the two T-accounts.

2. Assume the December 31, 2019, balance of Accounts Receivable is \)136,000.

Show how net accounts receivable would be reported on the balance sheet at

that date.

Step by step solution

01

Definition of the bad debts allowance method 

This is a method in which the company makes estimates of the number of bad debts before the amount becomes due.

02

 Step 2: Journal Entries

Date	Particulars	Debit	Credit
December 31, 2018	Bad Debt Expense	$9,000
	Allowance for Bad Debts		$9,000
	(To record bad debt expense)
	(450000*2%)
December 31, 2018	Income Summary	$9,000
	Bad Debt Expense		$9,000
	(To close bad debts account)
2019
June 17, 2019	Accounts Receivable	$400
	Sales Revenue		$400
	(To record credit sale)
August 6, 2019	Cash	$400
	Accounts Receivable		$400
	(To record the cash receipts)
December 31, 2019	Allowance for Bad Debts	$3,000
	Accounts Receivable- Cam Carter		$1,400
	Accounts Receivable- Mike Venture		$1,200
	Accounts Receivable- Russel Reeves		$400
	(To record allowance)
December 31, 2019	Bad Debt Expense	$10,200
	Allowance for Bad Debts (510000*2%)		$10,200
	(To record bad debt expense)
December 31, 2019	Income Summary	$10,200
	Bad Debt Expense		$10,200
	(To close bad debts account)

03

T accounts

Allowance for Bad Debts Account
		$9,000	Balance December 31, 2018
		$9,000	Ending Balance December 31, 2018
June 29,2019	$400	$9,000	Opening Balance 2019
December 31,2019	$3,000	$400	August 6,2019
		$10,200	December 31,2019
		$16,200	Ending Balance

Bad Debt Expense
Details	Debit	Details	Credit
December 31, 2018	$9,000
Balance December 31, 2018	$9,000
December 31, 2019	$10,200
Balance December 31, 2019	$10,200

04

Balance sheet

Delta Watches
Balance Sheet
On December 31, 2019
Accounts Receivable	$136,000
Less: Allowance for bad debts	($16,200)
Net Accounts Receivable		$119,800

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