Question

4. Stiller Company uses the allowance method to account for bad debts. In the first year of operations (2014), Stiller sold $540,000 of merchandise on credit, including a $2,500 sale to Bubba Long. On December 31, 2014, it provided an addition to its allowance for doubtful accounts equal to 1.8% of its credit sales. On June 1, 2015, Stiller wrote off as uncollectible the $2,500 account of Bubba Long; and on December 25, 2015 Bubba Long unexpectedly paid his account in full. (6 points) Prepare the journal entries that stiller Company should make: a) On December 31, 2014, to increase the allowance for doubtful accounts. b) On Jun 1, 2015, to write off the bad debt. c) On December 25, 2015, to record the unexpected collection from Bubba Long.

Hi, I'm having trouble journalizing this question. Could someone break it down for me? Thanks.

Answer 1

The journal entries are prepared as below:

a)

	Date	Account Titles	Debit	Credit
a)	December 31, 2014	Bad Debt Expense (540,000*1.8%)	$9,720
		Allowance for Doubtful Accounts		$9,720
b)	Jun 1, 2015	Allowance for Doubtful Accounts	$2,500
		Accounts Receivable, Bubba Long		$2,500
c)	December 25, 2015	Accounts Receivable, Bubba Long	$2,500
		Allowance for Doubtful Accounts		$2,500
		Cash	$2,500
		Accounts Receivable, Bubba Long		$2,500