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Question 1

During its first year of operations, Bright Lights Company earned net credit sales of $304,100.

Industry experience suggests that bad debts will amount to 5% of net credit sales.

At December 31, 2019, accounts receivable totaled $43,400. The company uses the allowance method to account for uncollectibles.

Journalize Bright Lights Bad Debts Expense using the percent-of-sales method.

Journal
DateDescriptionDebitCredit
December 31
December 31

Show how to report accounts receivable on the balance sheet at December 31, 2019.

BRIGHT LIGHTS COMPANY
Balance Sheet−Partial
December 31, 2019
DescriptionAmount
Subcategory,Assets
Subcategory,Current Assets:
Single line
Single line


Question 2

At January 1, 2020, Hilly Mountain Flagpoles had Account Receivable of $31,300 and Allowance for Bad Debts had a credit balance of $3,200.

During the year, Hilly Mountain Flagpoles recorded the following:

  1. Recorded sales of $175,200 of which $157,500 was on account and $17,700 was for cash.
  2. Collections on account for the year totaled $130,700.
  3. Write-offs of uncollectible receivables,  $2,400.

Journalize Hilly Mountain Flagpoles transactions that occurred during 2020. The company uses the allowance method.

Journal
DateDescriptionDebitCredit
a.
a.
a.
b.
b.
c.
c.

Post the transactions to the Accounts Receivable and Allowance for Bad Debts T accounts.

Accounts Receivable
DebitCredit
Double lineDouble line

Allowance for Bad Debts
DebitCredit
Double lineDouble line

d. Journalize Hilly Mountain Flagpoles adjustment to record bad debts expense assuming Hilly Mountain Flagpoles estimates bad debts as 3% of credit sales.

Post the adjustment to the appropriate T accounts.

Journal
DateDescriptionDebitCredit
d.
d.

Bad Debts Expense
DebitCredit
Double lineDouble line

Allowance for Bad Debts
DebitCredit
Double lineDouble line

Show how Hilly Mountaint Flagpoles will report net accounts receivable on its December 31, 2020, Balance Sheet. Be sure to use parenthesis () or a negative sign when needed.

HILLY MOUNTAIN FLAGPOLES
Balance Sheet−Partial
December 31, 2020
DescriptionAmount
Subcategory,Assets
Subcategory,Current Assets:
Single line
Single line