Adria Lopez, owner of Success Systems, realizes that she needsto begin accounting for bad debts expense. Assume that SuccessSystems has total revenues of $50,000 during the first three monthsof 2014, and that the Accounts Receivable balance on March 31,2014, is $22,417.
Required: 1a. Prepare the adjusting entry needed for Success Systems torecognize bad debts expense, which are estimated to be 1% of totalrevenues on March 31, 2014 (assume a zero unadjusted balance in theAllowance for Doubtful Accounts at March 31).
1b. Prepare the adjusting entry needed for Success Systems torecognize bad debts expense, which are estimated to be 2% ofaccounts receivable on March 31, 2014 (assume a zero unadjustedbalance in the Allowance for Doubtful Accounts at March 31).
2. Assume that Success Systems' Accounts Receivable balance at June30, 2014, is $20,800 and that one account of $82 has been writtenoff against the Allowance for Doubtful Accounts since March 31,2014. If Adria Lopez uses the method prescribed in Part1b, what adjusting journal entry must be made to recognizebad debts expense on June 30, 2014?
Adria Lopez, owner of Success Systems, realizes that she needsto begin accounting for bad debts expense. Assume that SuccessSystems has total revenues of $50,000 during the first three monthsof 2014, and that the Accounts Receivable balance on March 31,2014, is $22,417. |
| Required: | |
| 1a. | Prepare the adjusting entry needed for Success Systems torecognize bad debts expense, which are estimated to be 1% of totalrevenues on March 31, 2014 (assume a zero unadjusted balance in theAllowance for Doubtful Accounts at March 31). |
| 1b. | Prepare the adjusting entry needed for Success Systems torecognize bad debts expense, which are estimated to be 2% ofaccounts receivable on March 31, 2014 (assume a zero unadjustedbalance in the Allowance for Doubtful Accounts at March 31). |
| 2. | Assume that Success Systems' Accounts Receivable balance at June30, 2014, is $20,800 and that one account of $82 has been writtenoff against the Allowance for Doubtful Accounts since March 31,2014. If Adria Lopez uses the method prescribed in Part1b, what adjusting journal entry must be made to recognizebad debts expense on June 30, 2014? |
Related questions
Kiley Company had a $900 credit balance in Allowance for Doubtful Accounts at December 31, 2005, before the current year's provision for uncollectible accounts. An aging of the accounts receivable revealed the following:
| Estimated Percentage | ||
| Uncollectible | ||
| Current Accounts | $120,000 | 1% |
| 1-30 days past due | 12,000 | 3% |
| 31-60 days past due | 10,000 | 6% |
| 61-90 days past due | 5,000 | 12% |
| Over 90 days past due | 8,000 | 30% |
| Total Accounts Receivable | $155,000 | |
Instructions
Please identify each of your answers with the letter of the transactions you are journalizing.
(a)Prepare the adjusting entry on December 31, 2005, 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 uncollectible accounts. Prepare the adjusting entry for the current year's provision for uncollectible accounts.
(c)Assume that the company has a policy of providing for bad debts at the rate of 1% of sales, that sales for 2005 were $500,000, and that Allowance for Doubtful Accounts had a $550 credit balance before adjustment. Prepare the adjusting entry for the current year's provision for bad debts.
