Majestic Equipment Sales Company, which sells only on account, had a $120,000 balance in its Accounts Receivable and a $4,200 balance in its Allowance for Doubtful Accounts on December 31, 2015. During 2016, the company’s sales of equipment were $820,000 and its total cash collections from customers were $780,000.
During the year, the company concluded that customers with accounts totalling $6,000 would be unable to pay, and wrote these receivables off. However, one of these customers subsequently made a payment of $850 (note that this amount is not included in the cash collections noted above). At the end of 2016, management decided that it would use an estimate for bad debts of 1% of its credit sales.
a. Prepare the journal entries to record all the 2016 transactions, including the adjustment for bad debts expense at year end.
b. Show how the accounts receivable section of the statement of financial position at December 31, 2016, would be presented.
c. What amount of bad debts expense would appear in the statement of income for the year ended December 31, 2016?

  • CreatedJune 11, 2015
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