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6 March, 06:18

Castle Company provides estimates for its uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $17,280 at the beginning of 2021 and a $22,410 credit balance at the end of 2021 (after adjusting entries). If the direct write-off method had been used to account for uncollectible accounts (bad debt expense equals actual write-offs), the income statement for 2021 would have included bad debt expense of $17,100 and revenue of $2,200 from the collection of previously written off bad debts.

Required: Determine bad debt expense for 2018 according to the allowance method.

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  1. 6 March, 06:57
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    Dr Bad debt expense 20,030

    Cr Allowance for doubtful accounts 20,030

    Explanation:

    first we must determine the net amount of bad debt under direct write off = $17,100 - $2,200 = $14,900

    now the increase in the allowance account during 2021 = $22,410 - $17,280 = $5,130

    The journal entries following allowance method:

    bad debts written off:

    Dr Allowance for doubtful accounts 17,100

    Cr Accounts receivable 17,100

    bad debts recovered:

    Dr Accounts receivable 2,200

    Cr Allowance for doubtful accounts 2,200

    Dr Cash 2,200

    Cr Accounts receivable 2,200

    Adjustments following allowance method:

    recording bad debt expenses (net amount of bad debt + increase in allowance for bad debt account = $14,900 + $5,130)

    Dr Bad debt expense 20,030

    Cr Allowance for doubtful accounts 20,030

    Now we can check:

    $17,280 (beginning balance) - $17,100 write offs + $2,200 recoveries + $20,030 bad debt expense = $22,410 which is the ending balance of allowance for doubtful accounts
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