Allowance method: Under allowance method, an allowance for bad debts is created with estimation before the bad debts actually become uncollectible. At the time of write-off of bad debts, the allowance for bad debt is debited and accounts receivable is credited. Allowance method aims at accounting for the bad debts during same period in which the sale occurred. To determine : 1. Journalize the January 31 entry to record and establish the allowance using the percent-of-sales method for January sales revenue. 2. Prepare journal entry to write-off the customer’s bad debt.

Question

On December 31, Campbell Company had an ending inventory of $53,700 based primarily on a physical count at its warehouse. In computing the final balance of the Inventory, the following information was available: a. Inventory items with a cost of $2,180 were excluded from the ending inventory. These goods were on consignment from Parker Company and had not yet been sold on December 31. b. Inventory items with a cost of $3,350 were excluded from ending inventory. These goods were in transit from Ross Company to Campbell Company and were purchased FOB shipping point. c. Inventory items with a cost of $3,920 were excluded from ending inventory. These goods were in transit from Green Company to Campbell Company and were purchased FOB destination. Required: Using the information given above, compute the correct final balance of inventory.

Answer 1

Question

Chapter 9, Problem P9.41CP

To determine

Allowance method:

Under allowance method, an allowance for bad debts is created with estimation before the bad debts actually become uncollectible. At the time of write-off of bad debts, the allowance for bad debt is debited and accounts receivable is credited. Allowance method aims at accounting for the bad debts during same period in which the sale occurred.

To determine:

1. Journalize the January 31 entry to record and establish the allowance using the percent-of-sales method for January sales revenue.

2. Prepare journal entry to write-off the customer’s bad debt.

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