P7-5 (Bad-Debt Reporting)

Solution is available here for U$10

Intermediate Accounting, 13th Edition

by Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

March 2009, ©2010

ISBN 978-0-470-37494-8

P7-5 (Bad-Debt Reporting) Presented below is information related to the Accounts Receivable accounts of Gulistan Inc. during the current year 2010.

1.       An aging schedule of the accounts receivable as of December 31, 2010, is as follows.

Age	Net Debit Balance	% to Be Applied After Correction is Made
Under 60 days	$172,342	1%
60-90 days	136,490	3%
91-120	39,924*	6%
Over 120 days	23,644	$3,700 definitely uncollectible; estimated remainder uncollectible is 25%
	$372,400

*The $3,240 write-off of receivables is related to the 91-to-120 day category.

2.       The Accounts Receivable control account has a debit balance of $372,400 on December 31, 2010.

3.       Two entries were made in the Bad Debt Expense account during the year: (1) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (2) a credit for $3,240 on November 30, 2010, and a debit to Allowance for Doubtful Accounts because of bankruptcy.

4.       The Allowance for Doubtful Accounts is as follows for 2010.

Allowance for Doubtful Accounts
Nov 3	Uncollectible accounts written off	3,240	Jan 1	Beginning balance	8,750
			Dec 31	5% of $372,400	18,620

5.       A credit balance exists in the Accounts Receivable (60-90 days) of $4,840, which represents an advance on a sales contract.

Instructions

Assuming that the books have not been closed for 2010, make the necessary correcting entries.