Question

At the end of 2022 , Crane Co. has accounts receivable of $704,000 and an allowance for doubtful accounts of $70,800. On January 24 , 2023 , the company learns that its receivable from Megan Gray is not collectible, and management authorizes a write-off of $5,500. On March 4, 2023, Crane Co. receives payment of $5,500 in full from Megan Gray. Prepare the journal entries to record the March 4, 2023, transaction. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

To record the March 4, 2023, transaction, journal entries should be made to reduce the allowance for doubtful accounts and record the cash received.

Step-by-step explanation:

To record the transaction on March 4, 2023, when Crane Co. receives payment of $5,500 in full from Megan Gray, the following journal entries should be made:

1. Debit Accounts Receivable - Megan Gray $5,500
   Credit Allowance for Doubtful Accounts $5,500
2. Debit Cash $5,500
   Credit Accounts Receivable - Megan Gray $5,500

The first journal entry reduces the Allowance for Doubtful Accounts by $5,500 to reflect the write-off of the uncollectible amount. The second journal entry increases the Cash account by $5,500 as the payment is received from Megan Gray, and reduces the Accounts Receivable - Megan Gray account.

Answer 2

Upon receiving payment from Megan Gray, Crane Co. needs to make two journal entries: one to reverse the prior write-off by debiting Allowance for Doubtful Accounts and crediting Accounts Receivable, and a second entry to record the cash payment by debiting Cash and crediting Accounts Receivable.

Step-by-step explanation:

When Crane Co. receives payment of $5,500 from Megan Gray after the account was previously written off, the company must reverse the write-off and then recognize the payment. The journal entries on March 4, 2023, would first include a debit to the Allowance for Doubtful Accounts and a credit to Accounts Receivable for the amount of $5,500 to reverse the write-off. Then, in a second entry, the company would debit Cash and credit Accounts Receivable for the same amount to reflect the payment received from Megan Gray.

The entries would look like:
1. Debit Allowance for Doubtful Accounts $5,500
Credit Accounts Receivable $5,500
(To reverse the write-off of the account)
2. Debit Cash $5,500
Credit Accounts Receivable $5,500
(To record the receipt of cash that was previously written off)