Chapter 9, Problem 2BPSB

To determine

Concept Introduction:

Allowance method:

Under the Allowance method the estimated bad debts expenses are recorded using the Allowance for doubtful account and the actual bad debts written off using this account. Allowance for doubtful accounts represents the amount of expected bad debts or uncollectable accounts. This account is made as a provision for future bad debts.

Direct write off method:

Under the Direct write off method the actual bad debts are directly written of using the accounts receivable account.

Aging of receivable method:

Bad debts expense can be recognized with several methods. Aging of receivable method is one of those methods. In this method the receivables are categorized into different categories according to the age and percentage of uncollectible is determined for each age and bad debts are calculated using these percentages.

Percent of sales method:

Bad debts expense can be recognized with several methods. Percent of sales is one of those methods. Under this method the bad debts expense is calculated as a percentage of sales.

Requirement-1:

To prepare:

The Adjusting entries to record the bad debts under each of the given assumptions

Answer to Problem 2BPSB

The Adjusting entries to record the bad debts under each of the given assumptions are as follows:

a. Bad debts as % of Credit Sales
Date	Account titles	Debit	Credit
Dec. 31	Bad Debts Expense	$33,550
	Allowance for doubtful accounts		$ 33,550
b. Bad debts as % of Total Sales
Date	Account titles	Debit	Credit
Dec. 31	Bad Debts Expense	$35,505
	Allowance for doubtful accounts		$ 35,505
c. Bad debts as % of Accounts Receivable
Date	Account titles	Debit	Credit
Dec. 31	Bad Debts Expense	$27,000
	Allowance for doubtful accounts		$ 27,000

Explanation of Solution

The Adjusting entries to record the bad debts under each of the given assumptions are explained as follows:

a. Bad debts as % of Credit Sales
Date	Account titles	Debit	Credit
Dec. 31	Bad Debts Expense	$33,550
	Allowance for doubtful accounts		$ 33,550
	(Being bad debts expense recorded)
	Note: Calculation of Bad debts Expense:
	Credit Sales (A)	$ 1,342,000
	Bad Debts Expense (B) = (A*2.5% )	$33,550
b. Bad debts as % of Total Sales
Date	Account titles	Debit	Credit
Dec. 31	Bad Debts Expense	$35,505
	Allowance for doubtful accounts		$ 35,505
	(Being bad debts expense recorded)
	Note: Calculation of Bad debts Expense:
	Total Sales (A) (1025000+1342000)	$ 2,367,000
	Bad Debts Expense (B) = (A*1.5% )	$35,505
c. Bad debts as % of Accounts Receivable
Date	Account titles	Debit	Credit
Dec. 31	Bad Debts Expense	$27,000
	Allowance for doubtful accounts		$ 27,000
	(Being bad debts expense recorded)
	Note: Calculation of Bad debts Expense:
	Accounts Receivable (A)	$ 575,000
	Estimated bad debts (B) = (A*6% )	$34,500
	Balance in Allowance for doubtful accounts (C)	$ 7,500	Credit
	Bad debts Expense (B-C)	$27,000

To determine

Concept Introduction:

Allowance method:

Under the Allowance method the estimated bad debts expenses are recorded using the Allowance for doubtful account and the actual bad debts written off using this account. Allowance for doubtful accounts represents the amount of expected bad debts or uncollectable accounts. This account is made as a provision for future bad debts.

Direct write off method:

Under the Direct write off method the actual bad debts are directly written of using the accounts receivable account.

Aging of receivable method:

Bad debts expense can be recognized with several methods. Aging of receivable method is one of those methods. In this method the receivables are categorized into different categories according to the age and percentage of uncollectible is determined for each age and bad debts are calculated using these percentages.

Percent of sales method:

Bad debts expense can be recognized with several methods. Percent of sales is one of those methods. Under this method the bad debts expense is calculated as a percentage of sales.

Requirement-2:

To indicate:

The presentation of Accounts Receivable and Allowance for doubtful account on the balance sheet in the case of 1(a)

Answer to Problem 2BPSB

The presentation of Accounts Receivable and Allowance for doubtful account on the balance sheet in the case of 1(a) shall be as follows:

a. Ingleton Company
Balance Sheet Extract
As on Dec. 31
Current Assets:
Accounts receivable	$ 575,000
Allowance for doubtful accounts	$ (41,050)
Accounts receivable, net		$ 533,950

Explanation of Solution

The presentation of Accounts Receivable and Allowance for doubtful account on the balance sheet in the case of 1(a) is explained as follows:

a. Ingleton Company
Balance Sheet Extract
As on Dec. 31
Current Asstes:
Accounts receivable	$ 575,000
Allowance for doubtful accounts (33550+7500)	$ (41,050)
Accounts receivable, net		$ 533,950

To determine

Concept Introduction:

Allowance method:

Under the Allowance method the estimated bad debts expenses are recorded using the Allowance for doubtful account and the actual bad debts written off using this account. Allowance for doubtful accounts represents the amount of expected bad debts or uncollectable accounts. This account is made as a provision for future bad debts.

Direct write off method:

Under the Direct write off method the actual bad debts are directly written of using the accounts receivable account.

Aging of receivable method:

Bad debts expense can be recognized with several methods. Aging of receivable method is one of those methods. In this method the receivables are categorized into different categories according to the age and percentage of uncollectible is determined for each age and bad debts are calculated using these percentages.

Percent of sales method:

Bad debts expense can be recognized with several methods. Percent of sales is one of those methods. Under this method the bad debts expense is calculated as a percentage of sales.

Requirement-3:

To indicate:

The presentation of Accounts Receivable and Allowance for doubtful account on the balance sheet in the case of 1(c)

Answer to Problem 2BPSB

The presentation of Accounts Receivable and Allowance for doubtful account on the balance sheet in the case of 1(c) shall be as follows:

c. Ingleton Company
Balance Sheet Extract
As on Dec. 31
Current Assets:
Accounts receivable	$ 575,000
Allowance for doubtful accounts	$ (34,500)
Accounts receivable, net		$ 540,500

Explanation of Solution

The presentation of Accounts Receivable and Allowance for doubtful account on the balance sheet in the case of 1(c) is explained as follows:

c. Ingleton Company
Balance Sheet Extract
As on Dec. 31
Current Assets:
Accounts receivable	$ 575,000
Allowance for doubtful accounts	$ (34,500)
Accounts receivable, net		$ 540,500