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Chapter 7: Question 5 (page 363)

Wilton, Inc. had net sales in 2017 of \(1,400,000. At December 31, 2017, before adjusting entries, the balances in selected accounts were Accounts Receivable \)250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 8% of its receivables will prove to be uncollectible, prepare the December 31, 2017, journal entry to record bad debt expense.

Short Answer

Expert verified

Bad debt expenses equal $17,600 because $2,400 is adjusted against the credit balance of allowance for doubtful accounts.

Step by step solution

01

Definition of Net Sales

Net sales can be defined as the figure calculated from gross sales after adjusting for all discounts and returns.

02

Journal entry to record the bad debt expenses

Date

Accounts and explanation

Debit $

Credit $

31 Dec 2017

Bad Debt expenses

$17,600

Allowance for doubtful accounts

$17,600

Working notes:

Allowancefordoubtfulaccounts=Accountreceivables×Estimatedbeddebtpercentage-Creditbalanceforallowancefordoubtfulaccounts=$250,000×8%-2400=$17,600

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Most popular questions from this chapter

(Bad Debts—Aging) Danica Patrick, Inc. includes the following account among its trade receivables.

Hopkins Company

1/1

Balance forward

700

1/28

Cash (#1710)

$1,100

1/20

Invoice #1710

1,100

4/2

Cash (#2116)

1,350

3/14

Invoice #2116

1,350

4/10

Cash (1/1 Balance)

155

4/12

Invoice #2412

1,710

4/30

Cash (#2412)

1,000

9/5

Invoice #3614

490

9/20

Cash (#3614 and part of #2412)

790

10/17

Invoice #4912

860

10/31

Cash (#4912)

860

11/18

Invoice #5681

2,000

12/1

Cash (#5681)

1,250

12/20

Invoice #6347

800

12/29

Cash (#6347)

800

Instructions

Age the balance and specify any items that apparently require particular attention at year-end

(Transfer of Receivables without Recourse) JFK Corp. factored $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2017. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1½% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.

Instructions

(a) Prepare the journal entry on July 1, 2017, for JFK Corp. to record the sale of receivables without recourse.

(b) Prepare the journal entry on July 1, 2017, for LBJ Finance Corporation to record the purchase of receivables without recourse.

Explain how accounting for bad debts can be used for earnings management.

(Transfer of Receivables with Recourse) Ames Quartet Inc. factors receivables with a carrying amount of \(200,000 to Joffrey Company for \)160,000 on a with recourse basis.

(Journalize Various Accounts Receivable Transactions) The balance sheet of Starsky Company at December 31, 2016, includes the following.

Note receivable

\(36,000

Accounts receivable

182,100

Less: Allowance for doubtful accounts

17,300

\)200,800

Transactions in 2017 include the following.

1. Accounts receivable of \(138,000 were collected including accounts of \)60,000, on which 2% sales discounts were allowed.

2. \(5,300 was received in payment of an account which was written off the books as worthless in 2016.

3. Customer accounts of \)17,500 were written off during the year.

4. 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.

Instructions

Prepare all journal entries necessary to reflect the transactions above.
See all solutions

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