Ch8 AR
Ex. 228
The December 31, 2010 balance sheet of Sauder Company had Accounts Receivable
of ₤500,000 and a credit balance in Allowance for Doubtful Accounts of ₤33,000.
During 2011, the following transactions occurred: sales on account ₤1,200,000; sales
returns and allowances, ₤50,000; collections from customers, ₤1,165,000; accounts
written off ₤35,000; previously written off accounts of ₤5,000 were collected.
Instructions
(a) Journalize the 2011 transactions.
(b) If the company uses the percentage-of-sales basis to estimate bad debts
expense and anticipates 2% of net sales to be uncollectible, what is the adjusting
entry at December 31, 2011?
(c) If the company uses the percentage-of-receivables basis to estimate bad debts
expense and determines that uncollectible accounts are expected to be 4% of
accounts receivable, what is the adjusting entry at December 31, 2011?
(d) Which basis would produce a higher net income for 2011 and by how much?
Ans: N/A, SO: 3, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN:
Measurement, AICPA PC: Problem Solving, IMA: FSA
Solution 228 (20–30 min.)
(a) Accounts Receivable…………………………………………………………… 1,200,000
Sales ……………………………………………………………………….. 1,200,000
(To record credit sales)
Sales Returns and Allowances ……………………………………………… 50,000
Accounts Receivable …………………………………………………. 50,000
(To record credits to customers)
Cash ………………………………………………………………………………. 1,165,000
Accounts Receivable …………………………………………………. 1,165,000
(To record collection of receivables)
Allowance for Doubtful Accounts …………………………………………… 35,000
Accounts Receivable …………………………………………………. 35,000
(To write off specific accounts)
Accounts Receivable…………………………………………………………… 5,000
Allowance for Doubtful Accounts ………………………………….. 5,000
