At December 31, its annual year-end, the accounts of Luna Architecture Inc. show the following.
1. $250,000 in sales revenue for the year, of which one-sixth was on account.
2. $1,000 credit balance in Allowance for Doubtful Accounts, as of December 31 of the prior year.
3. $20,000 debit balance in Accounts Receivable as of December 31 of the current year (prior to any write-offs of uncollectible accounts during the current year).
4. $1,200 in uncollectible accounts to be written off as of December 31 of the current year.
5. Aging schedule at December 31 of the current year, showing the following breakdown of total accounts receivable excluding amounts to be written off.
Status Amount
Not past due Remainder
Past due 1-60 days $5,000
Past due over 60 days $4,000
Required
a. Prepare the entry to write off the uncollectible accounts.
Date Account Name Dr. Cr.
Dec. 31 Allowance for Doubtful Accounts 1,200 0
Accounts Receivable 0 1,200
To write off uncollectible accounts.
b. Prepare the adjusting entry on December 31 to record bad debt expense assuming the following:
Allowance for doubtful accounts is based on an aging schedule: Not past due, 1.0%; Past due 1-60 days, 2%; and Past due over 60 days, 5%.
Date Account Name Dr. Cr.
Dec. 31 Bad Debt Expense 610 0
Allowance for Doubtful Accounts 0 610
To record bad debt expense.
