[tismarie]

I am lost on what they are asking. I reread the chapter and looked over my notes and I still can not figure this out. Please help with explanation.

The ledger of Hixson Company at the end of the current year shows Accounts Receivable $120,000, Sales $840,000, and Sales Returns and Allowances $30,000.






If Hixson uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Hixson determines that Fell's $1,400 balance is uncollectible.
Date Account/Description Debit Credit
Dec. 31

Bad debt expense 1400
AR-Fell 1400
I understood this one




If Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable.
Date Account/Description Debit Credit
(1) Dec. 31 BDE
AFDA
(2) Dec. 31 BDE
AFDA

I know these are the journal entries and when I did the calculation it was wrong. I came up with 8400 for net sales and 12000 for accounts receivable. What step am I missing for the answer?
SHOW SOLUTION




Just like above but different numbers.

If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.
Date Account/Description Debit Credit
(1) Dec. 31

(2) Dec. 31


SHOW SOLUTION

[pready]

Your Allowance for doubtful accounts is 1% of net sales, so take your sales amount minus your sales return and allowances to get net sales. Now take your net sales times 1% to get the total amount of Allowance for doubtful accounts. Now take the total amount of Allowance for doubtful accounts minus the amount that is already in the account. This will be the amount of your entry. For the percent of Accounts Receivable take your A/R balance times 10% to get your total Allowance for doubtful accounts then minus the amount that is already in your Allowance for doubtful accounts for the amount of your journal entry.

For the allowance with the debit balance it is calculated the same way with the percentage given, except that your total amount will be added to the debit balance in the account to arrive at the amount for the journal entry.

[tismarie]

My balance for credit and debit are coming out wrong for net sales with the balances given. Am I missing something else? I came up with 6000 and 6275

[pready]

For Net Sales method scenario 1:
Net Sales is Sales of $840,000 minus Sales Returns & Allowances of $30,000 equals Net Sales of $810,000

Net Sales of $810,000 times 1% of net Sales equals $8,100 so your total Allowance for doubtful accounts balance will be $8,100 but you already have $2,100 in your Allowance for doubtful account. So you need to do an adjusting entry for $8,100 minus $2,100 equals $6,000

Your adjusting entry will be:
Debit Bad Expense and Credit Allowance for Doubtful Accounts of $6,000

Your account balance for Allowance for Doubtful Accounts is now $8,100

For the A/R method scenario 1:
Accounts Receivable of $120,000 times 6% of A/R equals $7,200 total Allowance for Doubtful Accounts. You already have a balance of $2,100 so $7,200 minus $2,100 equals an adjusting entry of $5,000

Your adjusting entry will be:
Debit Bad Debt Expense and Credit Allowance for Doubtful Accounts for $5,000

Your account balance for Allowance for Doubtful Accounts is now $7,200

Net Sales scenario 2:
Net Sales is $810,000 times 0.75% of net sales equals $6,075 Allowance for Doubtful Accounts. You have a debit balance of $200 so your adjusting entry amount will be $6,075plus $200 equals $6,275

Your adjusting entry will be:
Debit Bad Debt Expense and Credit Allowance for Doubtful Accounts for $6,275

Your account balance for Allowance for Doubtful Accounts is now $6,075

A/R method scenario 2:
A/R balance of $120,000 times 6% of A/R equals $7,200 Allowance for Doubtful Accounts. You have a debit balance of $200 so your adjusting entry amount will be $7,200 plus $200 equals $7,400

Your adjusting entry will be:
Debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $7,400

Your account balance for Allowance for Doubtful Accounts is now $7,200

[tismarie]

That is what I came up with and when I applied my answer it said that I was incorrect for my net sales. Thanks for the help there may be something wrong with the system because I know I perform the equations correctly.

[pready]

There could be other information that is missing like Sales Discounts that would affect sales.