Question

Dialex Watches completed the following selected transactions during 2018 and 2019:

2018

Dec. 31 Estimated that bad debts expense for the year was 3% of credit sales of

\(410,000 and recorded that amount as expense. The company uses the

allowance method.

31 Made the closing entry for bad debts expense.

2019

Jan. 17 Sold merchandise inventory to Marty White, \)400, on account. Ignore Cost of

Goods Sold.

Jun. 29 Wrote off Marty White’s account as uncollectible after repeated efforts to

collect from him.

Aug. 6 Received \(400 from Marty White, along with a letter apologizing for being

so late. Reinstated White’s account in full and recorded the cash receipt.

Dec. 31 Made a compound entry to write off the following accounts as uncollectible:

Barry Krisp, \)1,600; Maria Bryant, \(1,100; and Richard Renik, \)400.

31 Estimated that bad debts expense for the year was 3% on credit sales of

\(490,000 and recorded the expense.

31 Made the closing entry for bad debts expense.

Requirements

1.Open T-accounts for Allowance for Bad Debts and Bad Debts Expense, assuming

the accounts begin with a zero balance. Record the transactions in the general

journal (omit explanations), and post to the two T-accounts.

2.Assume the December 31, 2019, balance of Accounts Receivable is \)136,000. Show

how net accounts receivable would be reported on the balance sheet at that date.

Short answer

(1) T accounts and journal entries are recorded Step 2.

(2) Net accounts receivable will be reported as $121,300.

Step-by-step solution

Definition of the bad debts allowance method

This is a method in which the company makes estimates of the number of bad debts before the amount becomes due.

Journal Entries

Date	Particulars	Debit	Credit
December 31, 2018	Bad Debt Expense	$12,300
	Allowance for Bad Debts		$12,300
	($410,000 x 3%)
December 31, 2018	Income Summary	$12,300
	Bad Debt Expense		$12,300
2019
June 17, 2019	Accounts Receivable -Marty White	$400
	Sales Revenue		$400
June 29, 2019	Allowance for Bad Debts	$400
	Accounts Receivable—Marty White		$400
June 29, 2019	Accounts Receivable—Marty White	$400
	Allowance for Bad Debts		$400
August 6, 2019	Cash	$400
	Accounts Receivable		$400
December 31, 2019	Allowance for Bad Debts	$3,100
	Accounts Receivable- Barry Crisp		$1,600
	Accounts Receivable- Maria Bryant		$1,100
	Accounts Receivable- Richard Renik		$400
December 31, 2019	Bad Debt Expense	$14,700
	Allowance for Bad Debts		$14,700
	($490,000 x 3%)
December 31, 2019	Income Summary	$14,700
	Bad Debt Expense		$14,700