Question

On August 31, Pro Tennis Equipment had a $150,000 debit balance in Accounts Receivable ($70,000 current, $55,000 30 to 60 days, $35,000 60+). During September, Pro Tennis Equipment had the following transactions:
■ Sales of $500,000, all on credit.
■ Collections on account, $550,000.
■ Write-offs of uncollectible receivables, $7,000.
Requirements
1. Assume that Pro Tennis Equipment uses the allowance method to account for doubtful accounts and that there was a $9,000 credit balance in the allowance account on August 31. Prepare journal entries to record sales, collections on account, and write-offs of Doubtful Accounts for the month of September. Next, assuming that Doubtful Accounts expense is estimated at 2% of credit sales, prepare the adjusting journal entry to record bad debts expense. Enter the beginning balances and post all September activity in T-accounts for Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense.
2. Suppose that instead of the percentage of sales method, Pro Tennis Equipment uses the aging of accounts receivable method. The estimated bad debt is as follows: 1 % of current A/R, 5% of A/R 30-60 days, 20% of A/R 60+ days. Prepare journal entries to record sales, collections on account, and write-offs of Doubtful Accounts for the month of September. Enter the beginning balances and post all September activity in T-accounts for Accounts Receivable and Bad Debt Expense.
3. What amount of Bad Debt Expense would Pro Tennis Equipment report on its September income statement under each of the two methods?
4. What amount of net accounts receivable would Pro Tennis Equipment report on its September 30 balance sheet under each of the two methods?


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  • CreatedJuly 08, 2015
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