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15 November, 19:23

The ledger of Tamarisk, Inc. at the end of the current year shows Accounts Receivable $109,000; Sales Revenue $830,000; and Sales Returns and Allowances $23,700. Prepare journal entries for each separate scenario below. (a) If Tamarisk, Inc. uses the direct write-off method to account for uncollectible accounts, journalize the entry at December 31, assuming Tamarisk, Inc. determines that L. Dole's $1,500 balance is uncollectible. (b) If Allowance for Doubtful Accounts has a credit balance of $2,500 in the trial balance, journalize the adjusting entry at December 31, assuming uncollectible accounts are estimated to be 11% of accounts receivable. (c) If Allowance for Doubtful Accounts has a debit balance of $205 in the trial balance, journalize the adjusting entry at December 31, assuming uncollectible accounts are estimated to be 9% of accounts receivable.

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  1. 15 November, 19:24
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    (A)

    bad debt expense 1,500 debit

    account receivable 1,500 credit

    (B)

    bad debt expense 9,490

    allowance for doubtful accounts 9,490

    (C)

    bad debt expense 10,015

    allowance for doubtful accounts 10,015

    Explanation:

    (A)

    Direct write-off doesn't use allowance,

    bad debt is done directly to account receivable.

    (B)

    allowance = 11% of AR = 11% of 109,000 = 11,990

    balance (2,500 credit)

    11,990 - 2,500 = 9,490

    (C)

    allowance = 9% of AR = 9% of 109,000 = 9810

    balance 205 debit

    9,810 + 205 = 10,015

    Comments: the allowance is expected to be 9% or 11% of AR

    so the goal for B and C is to reach a final balance of 9% or 11% of AR

    so we have to subtract the balance from the expected allowance to knwo the adjustment.
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