At 31 December 2010, the trial balance of Lexington Pty Ltd contained the following amounts before adjustment Accounts receivable $400,000 Allowance for Doubtful Debts $1,000 Sales 950,000
Required:
a) Based on the information given, which method of accounting for bad debts is Lexington Pty Ltd using - the direct write-of method or the allowance method? How can you tell?
b) Prepare the adjusting entry at 31 December 2010, for bad debts assuming that the ageing schedule indicates that $11,750 of accounts receivable will be uncollectable.
c) Repeat part b) assuming that instead of a credit balance there is a $1,000 debit balance in the Allowance for Doubtful Debts.
d) During the next month, January 2011, a $5,000 account receivable is written off as uncollectable.
Prepare the journal entry to record the write-off. e) Repeat part (d) assuming that Lexington uses the direct write-off method instead of the allowance method in accounting for uncollectable accounts receivable.