Question

At the end of the year, the M. I. Wright Company showed the following selected account balances:

Sales (all on credit)............................................................................................... $300,000

Accounts Receivable........................................................................................... 800,000

Allowance for Doubtful Accounts....................................................................     38,000

Required:

1.         Assume the company estimates that 1% of all credit sales will not be collected.
            a.         Prepare the proper journal entry to recognize the expense                                  involved.
            b.         Present the balances in Accounts Receivable and Allowance for                      Doubtful Accounts as they would appear on the balance sheet.                         Also show the net realizable Accounts Receivable.

2.         Assume the company estimates that 5% of its accounts receivable     will never be collected.
            a.         Prepare the proper journal entry to recognize the expense                                  involved.
            b.         Present the balances in Accounts Receivable and Allowance for                      Doubtful Accounts as they would appear on the balance sheet.                                    Also show the net realizable Accounts Receivable.

3.         Under assumptions 1 and 2 above, give the proper journal entries for             the following events.

    June 3     John Shifty, who owes us $500, informs us that he is broke and cannot pay. We believe him.

    Nov. 9      We learned that John Shifty has won the lottery and is willing to pay off all his old debts.

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Answer 1

Solution Credit Debit $ 3,000 $3,000 Bad debt Allowanie fer Doubtful Account (Being bad debt recorded) 0 ( 300,000 X 1%) Balance Sheet Assets Current assets ; Accounts Receivable net of $41,000 allowance for doubtful accounts $ 759,000 Debit (6) 40,000 Credit(8) 40,000 Bad debt Allowance for Doubtful Account (Being bad debt recorded) U( 800,000 % 5% Balance sheet Aftet Currant aizrots : Account Receivable, net of $ 78,000 allowance for doubtful accounts $ 722,050

Date Accounts little Dobit (6) Credition 500 - Allowance for Doubful acounts Accounts Receivable (Berry Ale recevable written off) Nov 500 Accounts Receivable Allowance fer doubtful accounts (Being accounts receivable recorded for debt, written off earlier)