In Class Exercise | Percent-of-Receivables

Accounting for uncollectible accounts using the allowance method (percent-of-receivables) and reporting receivables on the balance sheet

At January 1, 2015, Windy Mountain Flagpoles had Accounts Receivable of $ 34,000 and Allowance for Bad Debts had a credit balance of $ 3,000. During the year, Windy Mountain Flagpoles recorded the following:

a. Sales of $189,000 ($165,000 on account; $ 24,000 for cash).

b. Collections on account, $ 133,000.

c. Write-offs of uncollectible receivables, $ 2,800.

Requirements

1. Journalize Windy’s transactions that occurred during 2015. The company uses the allowance method.

2. Post Windy’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Windy’s adjustment to record bad debts expense assuming Windy estimates bad debts as 1% of receivables. Post the adjustment to the appropriate T- accounts.

4. Show how Windy Mountain Flagpoles will report net accounts receivable on its December 31, 2015 balance sheet.

Requirement 1

a. Sales of $189,000 ($165,000 on account; $24,000 for cash).

Date

Account

Debit

Credit

Record sales for the year

b. Collections on account, $133,000.

Date

Account

Debit

Credit

Collected cash on account

c. Write-offs of uncollectible receivables, $2,800.

Date

Account

Debit

Credit

Wrote off uncollectible accounts

Requirement 2

Accounts Receivable

Allowance for Bad Debts

Requirement 3

Date

Account

Debit

Credit

Recorded bad debts expense for the period

Allowance for Bad Debts

Bad Debts Expense

Requirement 4

WINDY MOUNTAIN FLAGPOLES

Balance Sheet—Partial

December 31, 2015

Assets

Current Assets

Accounts Receivable

Less: Allowance for Bad Debts

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