Chapter 9, Problem 9.5AP

(a)

To determine

Bad debts:

Bad debts can be defined as those accounts receivable that a firm does not expect to collect and has written off to its income statement under the head, expense. They are also termed as irrecoverable debts.

Bad debts are considered as expenses, as they are not anticipated to generate any financial benefits in the future. It leads to a corresponding decrease in the balance of accounts receivable on the balance sheet, as the bad debts are no longer an asset.

Allowance method:

Allowance method can be defined as the method to write off bad debts expense. Under this method, the firm does not wait for the time when bad debts would occur. It predicts the bad debts prior to its occurrence. It can be referred to as an estimation of additional funds received from sales transactions or other source that is kept aside to be paid off for bad debt when bad debt occurs.

Direct write-off method:

Under this method, firms report the estimated uncollectible amount to Bad debts expense. Under the direct write-off method, only the actual losses are recorded as bad debt expense. The gross amount of the accounts receivable is only recorded in the financial statements.

To determine: The method of accounting for bad debts in D Company.

(b)

To determine

To prepare: The journal entries to record the transactions at December 31, 2017 for bad debt expense.

(c)

To determine

To prepare: The journal entries to record the transactions with debit balance $1,000 for allowance for doubtful accounts.

(d)

To determine

To prepare: The journal entries to record the amount of account receivable written off as uncollectible.

(e)

To determine

To prepare: The journal entries to record the amount of account receivable written off as uncollectible.

(f)

To determine

To ascertain: The type of account for Allowance for Doubtful Accounts and how accounts receivable is reported on the balance sheet at the end of the accounting period.