13
Accounting for
Bad Debts
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
1. The matching principle estimates the bad expense in the same period the sale is
2. The Allowance for Doubtful Accounts accumulates estimated accounts receivable
3. Accounts Receivable
4. False. In the allowance method, Bad Debts Expense would not be debited. The
5. It has the opposite balance of accounts receivable. It shows the doubtful accounts
7. Disagree. The income statement approach is based on the net credit sales on the
income statement.
9. A company would age its accounts receivable to identify uncollected amounts to
10. Write-off:
Accounts
Debit
Credit
Allowance for Doubtful Accounts
XXX
XXX
Accounts
Debit
Credit
Accounts Receivable
XXX
Accounts
Cash
XXX
XXX
11. Both the Allowance account and Accounts Receivable are decreasing by same
amount.
12. The direct write-off method recognizes a Bad Debts Expense when a receivable is
14. Pete could avoid bad debts by accepting the use of credit cards by customers. It is
common practice to pass on the cost of credit cards to customers.
SOLUTIONS TO CONCEPT CHECKS
ACCOUNT
CATEGORY
1.
a. Bad Debts Expense
Expense
Debit
Accounts Receivable
Asset
Credit
3.
a. Bad Debts Expense
640
Allowance for Doubtful Accounts
Estimate of Bad Debts
Allowance for Doubtful Accounts
Estimate of Bad Debts
4. #1
Allowance for Doubtful Accounts
80
Accounts Receivable, Mary Robert
Wrote off Robert account
Accounts Receivable, Mary Robert
Reinstated Robert account
Cash
Collected from Robert
5. #1
Bad Debt Expense
80
Accounts Receivable, Mary Robert
Wrote off Robert account
#2
Accounts Receivable, Mary Robert
80
Bad Debts Recovered
Reinstated Robert account
Cash
Accounts Receivable, Mary Robert
SOLUTIONS TO SET A EXERCISES
13A–1. KILN.COM
PARTIAL BALANCE SHEET
DECEMBER 31, 2018
7
1
0
0
0
7
13A–2.
13A–3.
13A–4.
(a)
2018
Dec.
31
Bad Debts Expense
12
5
0
0
00
Allowance for Doubtful Accounts
12
5
0
0
00
Estimate of Bad Debts
2019
Apr.
Allowance for Doubtful Accounts
4
2
0
00
Accounts Receivable, Adam Don
4
2
0
0
00
Wrote off Customer Account
3
2020
Aug.
Accounts Receivable, Kim Nickles
4
4
0
00
Reinstate Customer Account
5
Cash
4
4
0
00
Accounts Receivable, Kim Nickles
4
4
0
00
Collected from Customer
EXERCISES (CONTINUED)
(b)
13A–5.
(a)
Dec.
31
Bad Debts Expense
3
6
0
0
00
SOLUTIONS TO SET B EXERCISES
13B–1. HAMLET.COM
PARTIAL BALANCE SHEET
DECEMBER 31, 2018
$71
0
6
13B–2.
13B–3.
13B–4.
(a)
2018
Dec.
31
Bad Debts Expense
11
8
0
0
00
Allowance for Doubtful Accounts
11
8
0
0
00
Estimate of Bad Debts
Apr.
Allowance for Doubtful Accounts
3
7
0
00
3
Wrote off Customer Account
Aug.
Accounts Receivable, John Mason
5
1
0
00
EXERCISES (CONTINUED)
13B–4.
(b)
2019
Jun.
4
Bad Debts Expense
3
0
0
0
00
Accounts Receivable, John Mason
3
0
0
0
00
Wrote off Customer Account
Accounts Receivable, John Mason
5
1
0
00
Bad Debts Recovered
5
1
0
Reinstate Customer Account
Accounts Receivable, John Mason
5
1
0
00
13B–5.
(a)
Dec.
31
Bad Debts Expense
3
5
0
0
00
SOLUTIONS TO SET A PROBLEMS
PROBLEM 13A-1 LARS CO.
GENERAL JOURNAL PAGE 3
Date
Account Titles and Description
PR
Dr.
Cr.
2018
Dec.
31
Bad Debts Expense
16
0
0
0
00
Allowance for Doubtful Accounts
16
0
0
0
00
Accounts Receivable, Gene Smore
2
0
0
00
Accounts Receivable, Paul Jurgen
7
0
0
00
Accounts Receivable, Paul Jurgen
2
5
0
Allowance for Doubtful Accounts
2
5
0
00
To restore collectible portion
8
Cash
2
5
0
00
Accounts Receivable, Paul Jurgen
2
5
0
00
Collected from customer
Aug.
19
Allowance for Doubtful Accounts
2
0
0
00
Accounts Receivable, Jill Neill
5
Nov.
Accounts Receivable, Bob Shakur
5
5
0
Allowance for Doubtful Accounts
5
Collected from customer
PROBLEM 13A-2
Masse Co.
December 31, 2018
Amount
Estimated Percent Considered to be Bad
Debts Expense
Estimated Amount Needed
in Allowance for Doubtful
Accounts
Not yet due
$ 140,000
7%
$9,800
Over 6 months
MASSE CO.
GENERAL JOURNAL PAGE 1
Date
Account Titles and Description
PR
Dr.
Cr.
8
Dec.
31
Bad Debts Expense
14
8
9
0
00
31
Bad Debts Expense
15
5
7
0
00
5
MASSE CO.
PARTIAL BALANCE SHEET
DECEMBER 31, 2018
b
Current Assets
Cash
$28
0
0
0
00
3
0
7
7
0
00
0
0
0
00
7
7
0
00
PROBLEM 13A-3 T.J. ROOK
GENERAL JOURNAL PAGE 4
Date
Account Titles and Description
PR
Dr.
Cr.
2018
Mar.
13
Bad Debts Expense
2
2
0
0
00
To Write off Account
5
0
00
2019
Nov.
8
Accounts Receivable, P. Sower
5
5
0
00
Bad Debts Recovered
5
5
0
00
To record recovered portion
Cash
5
0
00
To record customer payment
Accounts Receivable, D. Longfield
4
5
0
00
PROBLEM 13A-4
(a) SEAY COMPANY
GENERAL JOURNAL Page 2
Account Titles and Description
PR
Dr.
Cr.
Jan.
Accounts Receivable, Roy’s Supply
1,700
Sales
00
Sold to Customer on Account
Cost of Goods Sold
00
00
15
Allowance for Doubtful Accounts
114
400
00
Accounts Receivable, Pete Ramos
400
00
Wrote off Customer Account
Mar.
17
Accounts Receivable, Rupe Co.
450
00
2018
Allowance for Doubtful Accounts
114
450
00
To record collected portion
17
Cash
450
00
Accounts Receivable, Rupe Co.
450
00
To record collected portion
Apr.
Cash
560
00
Allowance for Doubtful Accounts
114
00
Accounts Receivable, Lane Daley
4,000
00
Write off Customer Account
Jun.
15
Accounts Receivable, Mac‘s Garage
1,300
00
To record collected amount
15
Cash
1,300
00
Accounts Receivable, Mac‘s Garage
1,300
00
To record collected amount
Oct.
18
Allowance for Doubtful Accounts
114
1,330
00
Accounts Receivable, Jack’s Diner
140
00
Accounts Receivable, Kail Auto
440
00
Accounts Receivable, Red’s Hardware
750
00
Write off Customer Accounts
Nov.
12
Accounts Receivable, J.B. Rug
1,500
00
Sales
1,500
00
Nov.
12
Cost of Goods Sold
900
00
900
00
PROBLEM 13A-4 (CONTINUED) SEAY COMPANY
GENERAL JOURNAL PAGE 2
Date
2018
Account Titles and Description
PR
Dr.
Cr.
Dec.
31
Bad Debts Expense
612
5
7
2
0
00
Income Summary
7
2
0
5
7
2
0
(b) ALLOWANCE FOR DOUBTFUL ACCOUNTS
ACCOUNT NO. 114
Explanation
Post
Ref.
Debit
Balance
Date
2018
Credit
Debit
Credit
Jan.
1
Balance
√
4
3
0
0
00
15
GJ2
4
0
0
00
3
9
0
0
00
GJ2
5
0
5
0
00
GJ2
1
3
3
0
8
0
INCOME SUMMARY
ACCOUNT NO. 312
Date
2018
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
BAD DEBTS EXPENSE
ACCOUNT NO. 612
Date
2018
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Dec.
Adjusting
GJ2
5
7
2
0
5
2
0
Closing
GJ2
5
2
0
0
PROBLEM 13A-4 (CONCLUDED)
(c) SEAY COMPANY
PARTIAL BALANCE SHEET
DECEMBER 31, 2018
Current Assets
Cash
$12
0
0
0
00
SOLUTIONS TO SET B PROBLEMS
PROBLEM 13B-1
LEE CO.
GENERAL JOURNAL PAGE 3
Date
Account Titles and Description
PR
Dr.
Cr.
Bad Debts Expense
0
0
Allowance for Doubtful Accounts
0
0
0
Adjusting Entry
Allowance for Doubtful Accounts
6
0
Write off Customer Account
Allowance for Doubtful Accounts
2018
Accounts Receivable, Paul Jackson
1
0
0
0
00
Write off Customer Account
Jul.
8
Accounts Receivable, Paul Jackson
1
5
0
00
Allowance for Doubtful Accounts
1
5
0
00
Restore Customer Account
8
Cash
1
5
Accounts Receivable, Paul Jackson
Collected from customer
Aug.
Allowance for Doubtful Accounts
6
0
Accounts Receivable, Bob Shaddix
1
6
0
0
00
Write off Customer Account
24
Allowance for Doubtful Accounts
8
0
0
00
Accounts Receivable, Jill Noonan
8
0
0
00
Write off Customer Account
Accounts Receivable, Bob Shaddix
Allowance for Doubtful Accounts
Restore Customer Account
19
Cash
5
0
Accounts Receivable, Bob Shaddix
5
0
0
00
Collected from Customer
PROBLEM 13B-2
Masso Co.
December 31, 2018
Amount
Estimated Percent Considered to be Bad
Debts Expense
Estimated Amount Needed
in Allowance for Doubtful
Accounts
Not yet due
$ 120,000
2%
$ 2,400
11,000
61–180
11,000
21%
2,310
Over 6 months
MASSO CO.
GENERAL JOURNAL PAGE 1
Date
Account Titles and Description
PR
Dr.
Cr.
(a)
Dec.
Bad Debts Expense
7
9
0
7
9
0
Bad Debts Expense
8
1
0
2018
MASSO CO.
PARTIAL BALANCE SHEET
DECEMBER 31, 2018
Current Assets
0
0
0
5
0
Merchandise Inventory
0
0
5
0
PROBLEM 13B-3 T.J. RACK
GENERAL JOURNAL PAGE 4
Date
Account Titles and Description
PR
Dr.
Cr.
2018
Mar.
13
Bad Debts Expense
1
4
0
0
00
Accounts Receivable, S. Rosh
1
4
0
Write off Customer Account
Bad Debts Expense
Accounts Receivable, P. Spada
Write off Customer Account
Accounts Receivable, P. Spada
6
0
0
00
6
0
Bad Debts Recovered
Record recovered portion
8
Cash
6
0
0
00
Accounts Receivable, P. Spada
6
0
Record customer payment
Dec.
7
Bad Debts Expense
2
7
5
Accounts Receivable, J. Milton
2
7
Write off Customer Account
Bad Debts Expense
Accounts Receivable, D. Lovejoy
Write off Customer Account
PROBLEM 13B-4
(a) SIMON COMPANY
GENERAL JOURNAL PAGE 2
Date
Account Titles and Description
PR
Dr.
Cr.
9
Accounts Receivable, Ryan‘s Supply
1
6
0
0
Sales
Sold to Customer on Account
9
Cost of Goods Sold
1
0
0
0
Merchandise Inventory
0
0
0
2018
Allowance for Doubtful Accounts
Accounts Receivable, Pete Runnels
7
0
0
00
Wrote off Customer Account
Mar.
17
Accounts Receivable, Romero Co.
3
5
0
00
Allowance for Doubtful Accounts
3
5
0
To restore collected portion
Cash
Accounts Receivable, Romero Co.
3
5
0
00
To record collected portion
Cash
Allowance for Doubtful Accounts
114
3
6
8
0
00
Accounts Receivable, Lane Drug
4
6
0
0
00
Write off Customer Account
Jun.
15
Accounts Receivable, Mel‘s Garage
1
6
0
0
00
Allowance for Doubtful Accounts
1
6
0
0
00
To restore collected amount
Cash
Accounts Receivable, Mel‘s Garage
To record collected amount
114
1
3
0
0
00
Allowance for Doubtful Accounts
Accounts Receivable, Jane’s Diner
2
6
0
00
Accounts Receivable, Kailey Auto
4
4
0
00
Accounts Receivable, Rod’s Hardware
Write off Customer Accounts
Accounts Receivable, J.B. Rug
Sales
9
0
0
Sold to Customer on Account
PROBLEM 13B-4 (CONTINUED)
SIMON COMPANY GENERAL JOURNAL PAGE 2
Date
Account Titles and Description
PR
Dr.
Cr.
Nov.
12
Cost of Goods Sold
1
2
0
0
00
Dec.
31
Bad Debts Expense
6
3
3
0
00
Allowance for Doubtful Accounts
6
3
3
0
Adjust for Bad Debts
Income Summary
Bad Debts Expense
6
3
3
0
Close Bad Debts Expense
(b)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
NO. 114
Date
2018
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Jan.
1
Balance
√
4
2
0
0
00
GJ2
0
0
3
0
0
Apr.
9
GJ2
3
8
0
7
0
Adjusting
INCOME SUMMARY
ACCOUNT NO. 312
Date
2018
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
Dec.
31
Closing
GJ2
6
3
3
0
00
6
3
3
0
00
BAD DEBTS EXPENSE
ACCOUNT NO. 612
Date
2018
Explanation
Post
Ref.
Debit
Credit
Balance
Debit
Credit
GJ2
6
3
0
0
PROBLEM 13B-4 (CONCLUDED)
(c) SIMON COMPANY
PARTIAL BALANCE SHEET
DECEMBER 31, 2018
Current Assets
Cash
$11
0
0
0
00
KEEPING IT REAL: Suarez Computer Center
General Journal
PAGE 12
Date
Account Titles and Description
PR
Dr.
Cr.
0
0
3
0
201X