Chapter 8, Problem 1PB

Recording Accounts Receivable Transactions Using the Allowance Method

Chipman Sofware recently reported the following amounts in its unadjusted trial balance at its year-end:

	Debits	Credits
Accounts Receivable	$3,000
Allowance for Doubtful Accounts		$ 20
Sales (assume all on credit)		44,000

Required:

1. 1. Chipman uses ¼ of 1 percent of sales to estimate its Bad Debt Expense for the year. Prepare the adjusting journal entry required for the year, assuming no Bad Debt Expense has been recorded yet.
2. 2. Assume instead that Chipman uses the aging of accounts receivable method and estimates that $80 of its Accounts Receivable will be uncollectible. Prepare the year-end adjusting journal entry for recording Bad Debt Expense.
3. 3. Repeat requirement 2, except this time assume Chipman’s year-end unadjusted balance in Allowance for Doubtful Accounts was a debit balance of $20.
4. 4. If one of Chipman’s main customers declared bankruptcy after year-end, what journal entry would be used to write off its $15 balance?