BPA 211 Principles of Accounting I
1. The Harbor Company uses the allowance method in accounting for uncollectible accounts (bad debts). Harbor’s past experience indicates that 1% of a year’s net credit sales will eventually be uncollectible. Selected amounts at December 31, 2000, and December 31, 2001, appear below:
12/31/00 / 12/31/01Net Credit Sales for the year / $500,000 / $600,000
Accounts Receivable balance at year end / 90,000 / 120,000
Allowance for Doubtful Accounts balance / 5,000 / ??
Record the following events that occurred in 2001:
a. July 17: Determined that the account of Irwin Toady for $1,400 is uncollectible.
b. September 12: Determined that the account of Jeffrey Abernathy for $4,000 is uncollectible.
c. October 10: Received a check for $800 as payment on account from Irwin Toady, whose account had previously been written off as uncollectible. He indicated the remainder of his account would be paid in November. We believe him.
d. November 10: Received a check for $600 from Irwin Toady as payment on his account.
e. Prepare the adjusting journal entry to record the bad debt expense provision for the year ended December 31, 2001.
f. What is the balance of Allowance for Doubtful Accounts at Dec. 31, 2001?
2. The Anderson Company had an $900 credit balance in Allowance for Doubtful Accounts at December 31, 2001, before the current year’s provision (adjusting entry) for uncollectible accounts (bad debts). An aging of the Accounts Receivable revealed the following:
Estimated Percentage Uncollectible / AgingCurrent accounts / $120,000 / 1% / $1,200
1 - 30 days past due / 23,000 / 5% / 1,150
31 - 60 days past due / 17,000 / 10% / 1,700
61 - 90 days past due / 5,000 / 15% / 750
Over 90 days past due / 7,000 / 40% / 2,800
Total Accounts Receivable / $172,000 / $7,600
a. Prepare the adjusting entry on December 31, 2001, to recognize bad debts expense.
b. Assume the same facts as above, except that the Allowance for Doubtful Accounts account had a $700 debit balance before the current year’s provision for bad debts. Prepare the adjusting entry for the current year’s provision for bad debts.
c. Assume that the company has a policy of providing for bad debts at the rate of 2% of Sales, that Sales for 2001 were $500,000, and that Allowance for Doubtful Accounts had a $850 credit balance before adjustment. Prepare the adjusting entry for the current year’s provision for bad debts.
Answers:
Problem 1.
a. 7/17 Allowance for Doubtful Accounts 1,400
A/R—Irwin Toady 1,400
Write off bad debt
b. 9/12 Allowance for Doubtful Accounts 4,000
A/R—Jeffrey Abernathy 4,000
Write off bad debt
c. 10/10 A/R—Irwin Toady 1,400
Allowance for Doubtful Accounts 1400
Reinstate account
Cash 800
A/R—Irwin Toady 800
Collection on account
d. 11/10 Cash 600
A/R—Irwin Toady 600
Collection on account
e. 12/31 Bad debt expense 6,000
Allowance for Doubtful Accounts 6,000
AJE to provide for bad debts
f. $7,000
Allowance for Doubtful Accounts
5,000
1,400
4,000 1,400
6,000
7,000
Problem 2.
a. 12/31 Bad debt expense 6,700
Allowance for Doubtful Accounts 6,700
AJE to provide for bad debts
b. 12/31 Bad debt expense 8,300
Allowance for Doubtful Accounts 8,300
AJE to provide for bad debts
c. 12/31 Bad debt expense 10,000
Allowance for Doubtful Accounts 10,000
AJE to provide for bad debts
Handouts\Bad debt practice