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Chapter 2
Accounting for Receivables
AP-10A (
3
)
The 2015 and 2016 sales and accounts receivable information for Velcary Company are shown
below.
At the beginning of 2015, the AFDA account had a $0 balance. During 2015, sales for the year
totalled $1,200,000 with 60% on credit. At December 31 year-end, accounts receivable had
a debit balance of $55,000. Management estimated that 0.5% of all credit sales would be
uncollectible. The company wrote off $3,100 worth of accounts receivable at the end of the
year.
During 2016, sales totalled $1,630,000 with 60% on credit. On December 31, 2016, accounts
receivable has a debit balance of $76,000. During the year, the company wrote off a number
of accounts receivable, leaving the allowance for doubtful accounts with a debit balance of
$4,500. The estimate for bad debt expense for the year has not been determined or recorded.
After reviewing the write-offs, the company decided that the estimated percentage for AFDA
should be increased from 0.5% to 0.75%.
Required
a) Prepare the journal entry to record the bad debt expense for 2016.
Date
Account Title and Explanation
Debit
Credit
b) Prepare a T-account for the allowance for doubtful accounts and enter all related
transactions for year 2015 and 2016.
