Chapter 8, Problem 8.36BP

Accounting for uncollectible accounts using the allowance method (percent-of-sales) and reporting receivables on the balance sheet

Quality Watches completed the following selected transactions during 2016 and 2017:

2016
Dec. 31	Estimated that bad debts expense for the year was 1 % of credit sales of $440,000 and recorded that amount as expense. The company uses the allowance method.
31	Made the closing entry for bad debts expense.
2017
Jan. 17	Sold merchandise inventory to Malcom Monet, $500, on account. Ignore Cost of Goods Sold.
Jun. 29	Wrote off Mal com Monet’s account as uncollectible after repeated efforts to collect from him.
Aug. 6	Received $500 from Malcom Monet, along with a letter apologizing for being so late. Reinstated Monet’s account in full and recorded the cash receipt.
Dec. 31	Made a compound entry to write off the following accounts as uncollectible: Bernard Klaus, $1,800; Mo Vanez, $1,500; and Russell Reeves, $200.
31	Estimated that bad debts expense for the year was 1% on credit sales of $500,000 and recorded the expense.
31	Made the closing entry for bad debts expense.

Requirements

1. Open T-accounts for Allowance for Bad Debts and Bad Debts Expense. Keep running balances, assuming all accounts begin with a zero balance.

2. Record the transactions in the general journal, and post to the two T-accounts.

3. Assume the December 31, 2017, balance of Accounts Receivable is $136,000. Show how net accounts receivable would be reported on the balance sheet at that date.