Question

The Gadzooks Chip Company offers credit terms to its customers. At the end of 2016, accounts receivable totaled $2,449,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $72,200 at the beginning of 2016 and $48000 in receivables was written off during the year as uncollectible. No previously written off receivables were collected. The company estimates bad debts by applying a percentage of 2% to accounts receivable at the end of the year.

1.   Prepare journal entry to record the write-off of receivables.

2.   Prepare journal entries to record the year-end adjusting entry for bad debt expense. Show your computation.

3.   How would accounts receivable be shown in the 2016 year-end balance sheet?

4. The company made $1,500,000 net credit sales during the year. If the company had used income statement approach to charge 2% of net credit sales to bad debt expense, how would it be recorded in journal entry? Would it have increased or decreased the amount set aside as allowance for uncollectible accounts?