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Solution to Assignment Ch7

The document outlines the journal entries for Costello Company related to uncollectible accounts under different accounting methods. It includes calculations for bad debt expense based on both the direct write-off method and the allowance method, with specific percentages applied to net sales and accounts receivable. The entries are detailed for various scenarios, including different balances in the Allowance for Doubtful Accounts.

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20 views3 pages

Solution to Assignment Ch7

The document outlines the journal entries for Costello Company related to uncollectible accounts under different accounting methods. It includes calculations for bad debt expense based on both the direct write-off method and the allowance method, with specific percentages applied to net sales and accounts receivable. The entries are detailed for various scenarios, including different balances in the Allowance for Doubtful Accounts.

Uploaded by

kingpowellalexander
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Name: AbduMalik Salami

Course: Principles of Accounting BTA 111


Instructor Name: Angela Wu
Solutions to Chapter 7 Assignment

Chapter 7 Assignments
The ledger of Costello Company at the end of the current year shows Accounts Receivable $110,000,
Sales Revenue $840,000, and Sales Returns and Allowances $20,000.

Instructions
a. If Costello uses the direct write-off method to account for uncollectible accounts,
journalize the adjusting entry at December 31, assuming Costello determines that L.
Dole’s $1,400 balance is uncollectible.

Solution
Given:
• Accounts Receivable: $110,000
• Sales Revenue: $840,000
• Sales Returns and Allowances: $20,000

If Costello uses the direct write-off method to account for uncollectible accounts, journalize the
adjusting entry at December 31, assuming Costello determines that L. Dole’s $1,400 balance is
uncollectible.

Costello Company
Journal Entries
Bad Debt Expense 1,400.00
31-Dec Accounts Receivable - L. Dole 1,400.00
Assuming Costello determines that L. Dole’s $1,400 balance is uncollectible.

b. If Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 1% of net sales, and (2) 10% of accounts receivable.

Solution
Given:
• Accounts Receivable: $110,000
• Sales Revenue: $840,000
• Sales Returns and Allowances: $20,000
• Allowance Method (Credit Balance of $2,100 in Allowance for Doubtful Accounts)
• If Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial
balance, journalize the adjusting entry at December 31, assuming bad debts are
expected to be:
1. 1% of net sales
2. 10% of accounts receivable

1. 1% of Net Sales:
• Net Sales = Sales Revenue - Sales Returns and Allowances
• Net Sales = $840,000 − $20,000 = $820,000
• Bad Debt Expense = 1% of $820,000 = $8,200

Costello Company
Journal Entries
Bad Debt Expense 8,200.00
31-
Allowance for Doubtful Accounts 8,200.00
Dec
Assuming bad debts are expected to be 1% of net sales.

2. 10% of accounts receivable:


• Accounts Receivable = $110,000
• Required Allowance for Doubtful Accounts = 10% of $110,000 = $11,000
• Adjustment Needed = $11,000 − $2,100 (existing credit balance) = $8,900

Costello Company
Journal Entries
Bad Debt Expense 8,900.00
31-
Allowance for Doubtful Accounts 8,900.00
Dec
Assuming bad debts are expected to be 10% of accounts receivable.

c. If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 0.75% of net sales and (2) 6% of accounts receivable.
Solution
Given:
• Accounts Receivable: $110,000
• Sales Revenue: $840,000
• Sales Returns and Allowances: $20,000
• Allowance Method (Debit Balance of $200 in Allowance for Doubtful Accounts)
• If Allowance for Doubtful Accounts has a debit balance of $200 in the trial
balance, journalize the adjusting entry at December 31, assuming bad debts are
expected to be:
1. 0.75% of net sales
2. 6% of accounts receivable

1. 0.75% of net sales:


• Net Sales = $840,000 − $20,000 = $820,000
• Bad Debt Expense = 0.75% of $820,000 = $6,150

Costello Company
Journal Entries
Bad Debt Expense 6,150.00
31-
Allowance for Doubtful Accounts 6,150.00
Dec
Assuming bad debts are expected to be 0.75% of net sales

2. 6% of accounts receivable:
• Accounts Receivable = $110,000
• Required Allowance for Doubtful Accounts = 6% of $110,000 = $6,600
• Adjustment Needed = $6,600 + $200 (existing debit balance) = $6,800

Costello Company
Journal Entries
Bad Debt Expense 6,800.00
31-
Allowance for Doubtful Accounts 6,800.00
Dec
Assuming bad debts are expected to be 6% of accounts receivable

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