Chapter 9, Problem S9.7SE

Applying the allowance method (percent-of-receivables) to account for uncollectibles

Learning Objective 3

The Accounts Receivable balance for Lake Company at December 31, 2017, was $20,000. During 2018, Lake earned revenue of $454,000 on account and collected $325,000 on account. Lake wrote off $5,600 receivables as uncollectible. Industry experience suggests that uncollectible accounts will amount to 5% of accounts receivable.

Requirements

1. Assume Lake had an unadjusted $2,700 credit balance in Allowance for Bad Debts at December 31, 2018. Journalize Lake’s December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method.
2. Assume Lake had an unadjusted $2,400 debit balance in Allowance for Bad Debts at December 31, 201 8 Journalize Lake’s December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method.