Question

During its first year of operations, Spring Garden Plans earned net credit sales of $334,000. Industry experience suggests that bad debts will amount to 1% of net credit sales. At December 31, 2024,

accounts receivable total $38,000. The company uses the allowance method to account for uncollectibles.
Read the requirements.
Requirement 1. Journalize Spring's Bad Debts Expense using the percent-of-sales method. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.)
Accounts and Explanation
Debit
Credit
Dec.
Date
31
Requirement 2. Show how to report accounts receivable on the balance sheet at December 31, 2024.
Balance Sheet (Partial):
Current Assets:
Requirements
1. Journalize Spring's Bad Debts Expense using the percent-of-sales method.
2. Show how to report accounts receivable on the balance sheet at
December 31, 2024.

Answer 1

When journalizing Spring Garden Plans' Bad Debts Expense using the percent-of-sales method, the amount of bad debts can be calculated as follows: Bad Debts Expense = Net Credit Sales x Bad Debts Percentage. To report accounts receivable on the balance sheet, subtract the estimated amount of uncollectible accounts from the total accounts receivable.

Step-by-step explanation:

Requirement 1:

To journalize Spring Garden Plans' Bad Debts Expense using the percent-of-sales method, we need to calculate the amount of bad debts based on the net credit sales and the provided percentage of bad debts. The calculation is as follows:

Bad Debts Expense = Net Credit Sales x Bad Debts Percentage

Bad Debts Expense = $334,000 x 0.01

Bad Debts Expense = $3,340

The journal entry to record this expense would be:

Accounts and ExplanationDebitCreditBad Debts Expense$3,340Allowance for Doubtful Accounts$3,340

Requirement 2:

To report accounts receivable on the balance sheet at December 31, 2024, we need to subtract the estimated amount of uncollectible accounts from the total accounts receivable. The journal entry to record this adjustment would be:

Balance Sheet (Partial):Current Assets:Accounts Receivable$38,000Less: Allowance for Doubtful Accounts$3,340Net Accounts Receivable$34,660