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Answer:
- If Macarty uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Macarty determines that Matisse's $900 balance is uncollectible.
Bad debt expense $ 900
Accounts Receivable $ 900
- If Allowance for Doubtful Accounts has a credit balance of $1,100 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 10% of accounts receivable.
Bad debt expense $ 6.700
Allowance for Uncollectible Accounts $ 6.700
- If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 8% of accounts receivable.
Bad debt expense $ 6.740
Allowance for Uncollectible Accounts $ 6.740
Explanation:
Accounts Uncollectible are those credit that the company give and there are not chances of been collected.
When the customers buy products on credits but then the company can't collect the debt, then it's necessary to write off the unpaid bill as uncollectible .
One way it's to write-off directly the bad debts at the moment decided that the credit are uncollectible, the total amount it's reported as bad debt expenses which affect negativly the income statement and the accounts receivable are reduce in the same amount, less assets.
The other way it's to determine a percentage of total amount of accounts receivables as uncollectible, exist many ways to analize the accounts receivable and figure the value of uncollectible.
When the company have the percentage of uncollectible accounts the journal entry required is Bad Expenses (debit) with Allowance for Uncollectible Accounts (credit)
At the moment of the write-off as the expenses were before recognized we only use the Allowance for Uncollectible Accounts (Debit) with Accounts Receivable (Credit), with this we are recognizing the uncollectible credit of the company.
a) Journalizing the adjusting entry at December 31 if Macarty Company uses the direct write-off method to account for uncollectible accounts is as follows:
Debit Bad Debts Expense $900
Credit Accounts Receivable $900
- To write-off the uncollectible accounts.
b) Journalizing the adjusting entry at December 31 if Macarty Company uses if Allowance for Doubtful Accounts has a credit balance of $1,100 with 10% of accounts receivable expected to be bad debts, is as follows:
Debit Bad Debts Expense $7,600
Credit Allowance for Doubtful Accounts $7,600
c) Journalizing the adjusting entry at December 31 if Macarty Company uses if Allowance for Doubtful Accounts has a debit balance of $500 with 8% of accounts receivable expected to be bad debts, is as follows:
Debit Bad Debts Expense $7,640
Credit Allowance for Doubtful Accounts $7,640
Data and Calculations:
Accounts Receivable $78,000
Credit Sales $810,000
Sales Returns and Allowances $40,000
Net Sales = $770,000 ($810,000 - $40,000)
Expected bad debts = $7,800 ($78,000 x 10%)
Expected bad debts = $6,240 ($78,000 x 8%)
T-accounts for Scenario B and C.
Allowance for Doubtful Accounts
Account Titles Debit Credit
Beginning balance $1,100
Accounts Receivable $900
Bad Debts Expenses 7,600
Ending balance $7,800
Allowance for Doubtful Accounts
Account Titles Debit Credit
Beginning balance $500
Accounts Receivable $900
Bad Debts Expenses 7,640
Ending balance $6,240
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