Question

3. (8 points) The balance sheet of Starsky Company at December 31, 2018, includes the following Accounts receivable Less: Allowance for doubtful accounts 500,000 (40,000) $460,000 Transactions in 2019 include the following. 1. Sales on credit for the year were $1,000,000. (all service revenue) 2. Accounts receivable of $850,000 were collected. 3. Customer accounts of $34,000 were written off during the year. 4. At year-end, bad debts were estimated to be 5% of the ending A/R balance (based on the % of AVR method). Make sure to update the A/R and Allowance balance for the transactions above before calculating bad debt expense. Prepare all journal entries necessary to reflect the transactions above. Accounts Debit Credit

Answer 1

Solution

No.	Accounts	Debit	Credit
1	Accounts receivable	$ 1,000,000.00
	Cash		$ 1,000,000.00
	(To record credit sales)
2	Cash	$      850,000.00
	Accounts receivable		$      850,000.00
	(To record collection on accounts)
3	Allowance for doubtful accounts	$        34,000.00
	Accounts receivable		$        34,000.00
	(To write of bad debts)
4	Bad debts expense	$        19,000.00
	Allowance for doubtful accounts		$        19,000.00
	(To record bad debts expense)

Working

Beginning balance of Allowance for Bad Debts account	$    40,000.00
Less: Amount written off	$ (34,000.00)
Unadjusted balance for allowance for bad debts	$      6,000.00

.

Estimated balance of allowance for uncollectables	$ 25,000.00	Cr
Balance in Allowance for uncollectable account (Cr)	$    6,000.00	Cr
Total bad debts to be recorded	$ 19,000.00	Cr