Question

The Accounts Receivable balance for Clark ​, Inc. at December​ 31, 2017 ​, was $ 24 comma 000 . During 2018 ​, Clark earned revenue of $ 457 comma 000 on account and collected $ 323 comma 000 on account. Clark wrote off $ 6 comma 100 receivables as uncollectible. Industry experience suggests that uncollectible accounts will amount to 6 ​% of accounts receivable.

Assume Gold had an unadjusted $1,900 credit balance in Allowance for Bad Debts at December 31. 2018. Journalize Gold's December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method.

Answer 1

Debit Bad debt expense $13,314

Credit Allowance for doubtful account $13,314

(To record bad debt expense)

Step-by-step explanation:

The following transactions took place in 2018:

Debit Accounts receivable $457,000

Credit Sales revenue $457,000

(To record sales revenue on account)

Debit Cash $323,000

Credit Accounts receivable $323,000

(To record collection on account)

Debit Allowance for doubtful account $6,100

Credit Accounts receivable $6,100

(To record write-off of accounts receivable)

The net impact of the above journals on accounts receivable is $24,000 + $457,000 - $323,000 - $6,100 = $151,900.

6% of $151,900 = $9,114. However, the write-off would reduce the allowance account as follows: $1,900 - $6,100 = $4,200 debit balance, the required bad debt expense would be $9,114 + $4,200 = $13,314. The addition is necessary in order to reinstate the allowance account to $9,114. The required adjustment is recorded under the answer section.