Jada Company had the following account balances at December 1: Accounts Receivable $62,000; Credit Sales $473,000; Sales Returns and Allowances $7,000.
Direct Write-off Method
Jada uses the direct write-off method. The following transactions occurred:
Dec 12 Jada determines that it cannot collect $1,500 of its accounts receivable from Lilo Company
27 Lilo unexpectedly pays $200 on its account. Jada records its recovery of this bad debt.
Instructions: Prepare journal entries for the above transactions.
Dec 12 Bad Debt Expense 1,500
Accounts Receivable 1,500
Dec 27 Accounts Receivable 200
Bad Debt Expense 200
Dec 27 Cash 200
Accounts Receivable 200
Allowance Method
Jada uses the allowance method. The balance of the Allowance for Doubtful Accounts at December 1 was $950. The following transactions occurred:
Dec 12 Jada determines that it cannot collect $1,500 of its accounts receivable from Lilo Company
27 Lilo unexpectedly pays $200 on its account. Jada records its recovery of this bad debt.
Instructions:
(1) Prepare journal entries for the above transactions under the applicable method.
(2) Post the transactions above and determine the ending balance in Allowance for Doubtful Accounts.
(3) Assuming bad debts are expected to be 5% of accounts receivable, prepare the adjusting journal entry at December 31.
(1) Prepare journal entries for the above transactions under the applicable method.
Dec 12 Allowance for Doubtful Accounts 1,500
Accounts Receivable 1,500
Dec 27 Accounts Receivable 200
Allowance for Doubtful Accounts 200
Dec 27 Cash 200
Accounts Receivable 200
(2) Post the transactions above and determine the ending balance in Allowance for Doubtful Accounts.
Allowance for Doubtful Accounts
$950 Beginning balance
Write-off 1,500 200 Recovery
($350)
(3) Assuming bad debts are expected to be 5% of accounts receivable, prepare the adjusting journal entry at December 31.
Dec 31 Bad Debt Expense 3,025
Allowance for Doubtful Accounts 3,025
I would prioritize the answer for Allowance method Question #3 Thank you.