Task: At December 31, 2008, the trial balance of Worcester Company contained the following amounts before adjustment.
Debits Credits
Accounts receivable $385,000
Allowance for doubtful accounts $2,000
Sales 950,000
Q1. Based on the information given, which method of accounting for bad debts is Worcester Company using-the direct write-off method or the allowance method?
Q2. Prepare the adjusting entry at December 31, 2008, for bad debts expense under each of the following independent assumptions. (1) An aging schedule indicates that $11,750 of accounts receivable will be uncollectible. (2) The company estimates that 1% of sales will be uncollectible.
Q3. Prepare the adjusting entry at December 31, 2008, for bad debts expense under each of the following independent assumptions. (1) An aging schedule indicates that $11,750 of accounts receivable will be uncollectible. (2) The company estimates that 1% of sales will be uncollectible. Assume there is a $2,000 debit balance in Allowance for Doubtful Accounts.
Q4. During the next month, January 2009, a $3,000 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off.
Q5. Repeat the previous question assuming that Worcester uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.