At December 31, 2010, the trial balance of Worcester Company

At December 31, 2010, the trial balance of Worcester Company contained the following amounts before adjustment.

Credits Debits $385,000 Accounts Receivable Allowance for Doubtful Accounts Sales $ 2,000 950,000

Instructions

(a) Based on the information given, which method of accounting for bad debts is Worcester Company using—the direct write-off method or the allowance method? How can you tell?

(b) Prepare the adjusting entry at December 31, 2010, for bad debts expense under each of the following independent assumptions.

(1) An aging schedule indicates that $11,750 of accounts receivable will be uncollectible.

(2) The company estimates that 1% of sales will be uncollectible.

(c) Repeat part (b) assuming that instead of a credit balance there is an $2,000 debit balance in Allowance for Doubtful Accounts.

(d) During the next month, January 2011, a $3,000 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off.

(e) Repeat part (d) assuming that Worcester uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.

(f) What type of account is Allowance for Doubtful Accounts? How does it affect how accounts receivable is reported on the balance sheet at the end of the accounting period?


Aging Schedule
Aging schedule is an accounting table that shows a company’s account receivables. It is an summarized presentation of accounts receivable into a separate time brackets that the rank received based upon the days due or the days past due. Generally...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...

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