The following selected accounts are for Keystone Inc a name

The following selected accounts are for Keystone, Inc., a name brand shoe wholesale store, as of 2009 December 31. Prior to closing the accounts and making allowance for uncollectible accounts entries, the $ 5,000 account of Morgan Company is to be written off (this was a credit sale of 2009 February 12).

Prepare journal entries to record all of these transactions and the uncollectible accounts expense for the period. Assume the estimated expense is 2 per cent of net sales.

Give the entry to record the estimated expense for the period if the allowance account is to be adjusted to 5 per cent of outstanding receivables instead of as in (a).

Accounts receivable	$ 360,000
Allowance for uncollectible accounts (credit)	6,000
Sales	1,680,000
Sales returns and allowances	30,000

Solution

Answers

Accounts title

Debit

Credit

Allowance for Uncollectible accounts

$                               5,000.00

Accounts receivables

$                 5,000.00

(account written off)

---This entry will be same under both methods.

Sales

$                       1,680,000.00

Sales returns

$                             (30,000.00 )

Net Sales

$                       1,650,000.00

2% of net sales

$                             33,000.00

Accounts title

Debit

Credit

Bad Debt (Uncollectible) Expenses

$                             33,000.00

Allowance for Uncollectible accounts

$               33,000.00

(expense estimated as per 2% of net sales)

Accounts receivables

$                           360,000.00

Written Off

$                             (5,000.00)

Outstanding Accounts receivables

$                           355,000.00

5% of above = Adjusted balance of Allowance account

$                             17,750.00

Beginning Allowance account balance

$                               6,000.00

Account written off

$                             (5,000.00)

Unadjusted balance

$                               1,000.00

Adjusted balance required

$                             17,750.00

amount of Uncollectible expenses

$                             16,750.00

Accounts title

Debit

Credit

Bad Debt (Uncollectible) Expenses

$                             16,750.00

Allowance for Uncollectible accounts

$               16,750.00

(expense estimated as per % of account receivables)

Accounts title	Debit	Credit
Allowance for Uncollectible accounts	$                               5,000.00
Accounts receivables		$                 5,000.00
(account written off)