Chapter 9, Problem P9.35BPGB

Accounting for uncollectible accounts using the allowance (percent-of-sales) and direct write-off methods and reporting receivables on the balance sheet

Learning Objectives 1, 2, 3 1. Sep. 30 Bal. Accounts Receivable $91 ,000

On August 31. 2018, Forget-Me-Not Floral Supply had a $140,000 debit balance in Accounts Receivable and a $5,600 credit balance in Allowance for Bad Debts. During September, Forget-Me-Not made the following transactions:
• Sales on account, $530,000. Ignore Cost of Goods Sold.
• Collections on account, $573,000.
• Write-offs of uncollectible receivables, $6,000.

Requirements

1. Journalize all September entries using the allowance method. Bad debts expense was estimated at 2% of credit sales. Show all September activity in Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts).
2. Using the same facts, assume that Forget-Me-Not used the direct write-off method to account for uncollectible receivables. Journalize all September entries using the direct write-off method. Post to Accounts Receivable and Bad Debts Expense, and show their balances at September 30, 2018.
3. What amount of Bad Debts Expense would Forget-Me-Not report on its September income statement under each of the two methods? Which amount better matches expense with revenue? Give your reason.
4. What amount of net accounts receivable would Forget-Me-Not report on its September 30, 2018, balance sheet under each of the two methods? Which amount is more realistic? Give your reason.