Question

LO 8-2 9.3 Recording, Reporting, and Evaluating a Bad Debt Estimate Using the Percentage of Credit Sales Method ing the year ended December 31, 2015, Kelly's Camera Shop had sales revenue of $170,000, which $85,000 was on credit. At the start of 2015, Accounts Receivable showed a $10,000 debit holance and the Allowance for Doubtful Accounts showed a $600 credit balance. Collections of accounts receivable during 2015 amounted to $68,000. Data during 2015 follow: a. On December 10, a customer balance of $1,500 from a prior year was determined to be uncol- lectible, so it was written off. h On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year. Required: 1. Give the required journal entries for the two events in December. 2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the balance sheet and income statement for 2015. 3. On the basis of the data available, does the 2 percent rate appear to be reasonable? Explain.

Answer 1

Answer-1- Journal Entries

Date	Account Title and Explanation	Debit	Credit
Dec.10	Allowance for Doubtful Account	1,500
	Accounts Receivable		1,500
	(To record the write off a certain amount)
Dec.31	Bad Debts Expenses ($85,000*2%)	1,700
	Allowance for Doubtful Account		1,700
	(To record the adjustment for current year)

  BALANCE SHEET (PARTIAL)

Particulars	Amount
Current Assets:-
Accounts Receivable (WN 1)	$25,500
Less: Allowance for Doubtful Accounts (WN2)	$1,000
Net Realizable Value	$24,500

Working note for Accounts Receivable

1-10,000 A/R beginning balance

+ 85,000 Credit sales

- 68,000 A/R collections

- 1,500 A/R written off

= 25,500 A/R balance at the end of the year

Working Note for Allowance for Doubtful Accounts

800 Allowance for Doubtful Accounts (AFDA) beginning balance

- 1,500 Accounts written off

+ 1,700 Estimated bad debt losses

= 1,000 AFDA ending credit balance

INCOME STATEMENT (PARTIAL)

Particulars	Amount
Operating Expenses
Bad Debt Expenses	1,700

3-No