On August 31, Regence Restaurant Equipment, Inc., had a $9,200 debit balance in Accounts Receivable. During September, Regence Restaurant Equipment, Inc., had the following transactions:

• Sales of $53,000, all on credit; ignore cost of goods sold

• Collections on account, $50,500

• Write-offs of uncollectible receivables, $800

Requirements

1. Assume that Regence Restaurant Equipment, Inc., uses the allowance method to account for uncollectible accounts and that there was a $450 credit balance in the allowance account on August 31. Prepare journal entries to record sales (ignore cost of goods sold), collections on account, and write-offs of uncollectible accounts for the month of September. Next, assuming that bad debt expense is estimated at 3 percent 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 Uncollectible Accounts, and Bad Debt Expense.

2. Suppose that instead of the allowance method, Regence Restaurant Equipment, Inc., uses the direct write-off method to account for uncollectible receivables. Prepare journal entries to record sales, collections on account, and write-offs of uncollectible 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 Regence Restaurant Equipment, Inc., report on its September income statement under each of the two methods? Which amount better matches expense with revenue? Give your reasoning.

4. What amount of net accounts receivable would Regence Restaurant Equipment, Inc., report on its September 30 balance sheet under each of the two methods? Which amount is more realistic? Give your reasoning.