Question

The ledger of Cheyenne Company at the end of the current year shows Accounts Receivable $77,000, Credit Sales $810,000, and Sales Returns and Allowances $41,300. Prepare journal entries for each separate scenario below. (a) If Cheyenne uses the direct write-off method to account for uncollectible accounts, journalize the entry at December 15 if Cheyenne determines that Matisse’s $900 balance is uncollectible. (b) If Allowance for Doubtful Accounts has a credit balance of $900 in the trial balance, journalize the adjusting entry at December 31, assuming uncollectibles are expected to be 10% of accounts receivable. (c) If Allowance for Doubtful Accounts has a debit balance of $496 in the trial balance, journalize the adjusting entry at December 31, assuming uncollectibles are expected to be 9% of accounts receivable.

Answer 1

a. Dec 15

Dr Bad debt expense $900

Cr Account receivable $900

b. Dec 31

Dr Bad debt expense $6,800

Cr Allowance for doubtful accounts $6,800

c. Dec 31

Dr Bad debt expense $7,426

Cr Allowance for doubtful accounts $7,426

Step-by-step explanation:

Preparation of the journal entries

a. Preparation of the journal entry at December 15 if Cheyenne determines that Matisse’s $900 balance is uncollectible.

Dec 15 Bad debt expense $900

Account receivable $900

b. Preparation of the adjusting entry at December 31, assuming uncollectibles are expected to be 10% of accounts receivable

Dec 31

Dr Bad debt expense $6,800

Cr Allowance for doubtful accounts $6,800

[($77,000 x 10%) - $900]

c. Preparation of the adjusting entry at December 31, assuming uncollectibles are expected to be 9% of accounts receivable

Dec 31

Dr Bad debt expense $7,426

Cr Allowance for doubtful accounts $7,426

($77,000*9%+496)