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16 February, 06:51

The ledger of Sage Hill Inc. at the end of the current year shows Accounts Receivable $78,000; Credit Sales $855,000; and Sales Returns and Allowances $36,000. (a) If Sage Hill uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Sage Hill determines that Matisse's $750 balance is uncollectible. (b) If Allowance for Doubtful Accounts has a credit balance of $1,150 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 9% of accounts receivable. (c) If Allowance for Doubtful Accounts has a debit balance of $450 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 7% of accounts receivable.

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  1. 16 February, 06:55
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    Answer and Explanation:

    The journal entries are shown below:

    (a) Bad debt expense $750

    To Accounts receivable $750

    (Being the bad debt expense is recorded)

    (b) Bad debt expense $5,870

    To Allowance for doubtful accounts $5,870

    (Being the allowance is recorded)

    The computation is below:

    Bad debt expense = Accounts receivable * estimated percentage - credit balance in allowance for doubtful accounts

    = $78,000 * 9% - $1,150

    = $5,870

    (c) Bad debt expense $5,910

    To Allowance for doubtful accounts $5,910

    (Being the allowance is recorded)

    The computation is below:

    Bad debt expense = Accounts receivable * estimated percentage + debit balance in allowance for doubtful accounts

    = $78,000 * 7% + $450

    = $5,910
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