Answer to Question #216136 in Accounting for zuby

Question

Ray’s GamePlace sells all the hottest gear and video games. On January 1, 20X7, Ray’s had the following account balances:

Accounts receivable $ 27000

Less Allowance for bad debt (4000)

net accounts receivable 23000

1.

During 20X7, Ray’s wrote off $6,000 in uncollectible accounts. Make this journal entry.

2.

One account in the amount of $500 that had been written off in (a) above was collected. Make the journal entries to reinstate the account and show its collection.

3.

During 20X7, Ray’s made credit sales of $145,000 and collected $115,000 of accounts receivable. Record these journal entries.

4.

At the end of the year, Ray’s determines that approximately 7 percent of its ending accounts receivable balance will not be collected. Ray’s uses the percentage of receivables method of calculating bad debts. Make the necessary journal entry.

Answer 1

a)

Debit Allowance for Doubtful Accounts 6000

Credit Accounts Receivable 6000

b.

Debit Accounts Receivable 500

Credit Allowance for Doubtul Accounts 500

Debit Cash 500

Credit Accounts Receivable 500

c.

Debit Accounts Recievalble 145,000

Credits Sales 145,000

Debit Cash 115,000

Credit Accounts Receivable 115,000

d. AR balance at end of year:

Started with 27,000, then decrease of 6000 becaus of the write off, then increase by 145,000 because of credit sales and then decrease by 115,000 becaue of collections.

So balance is 51,000, and 7% of 51,000 is 3570. So the balance in the allowance account should be 3570.

Next we need to figure out what the current balance in the allowance account is:

Started out with 4000, then decreased by 6000 because of the write off, then increased by 500 because of the recovery.

So the current balance in the allowance account is (4000 - 6000 + 500 = -1500). This negative means it has a debit balance of 1500. We need a credit balance of 3570. So we need to credit the allowance account by 3570+1500 = 5250, and this will bring it up to a balance of 3750.

And the journal entry would be:

Debit Bad Debt Expense 5250

Credit Allowance for Doubtful Accounts 5250