Filler Company Uses the Allowance Method to Account for Bad

question 136

Essay

Filler Company uses the allowance method to account for bad debts. In the first year of operations (2019), Filler sold $640,000 of merchandise on credit, including a $3,500 sale to Bubba Long. On December 31, 2019, it provided an addition to its allowance for doubtful accounts equal to 1.8% of its credit sales. On June 1, 2020, Filler wrote off as uncollectible the $3,500 account of Bubba Long; and on December 25, 2020 Bubba Long unexpectedly paid his account in full. Prepare the journal entries that Filler Company should make:
(a) On December 31, 2019, to increase the allowance for doubtful accounts.
(b) On June 1, 2020, to write off the bad debt.
(c) On December 25, 2020, to record the unexpected collection from Bubba Long.

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Definitions:

Planning Budget

A budget created at the beginning of the budgeting period that is valid only for the planned level of activity.

Oil Well Service Company

A business that provides a variety of services to the oil industry, including drilling, maintenance, and repair of oil wells.

Planning Budget

A budget created for a specific level of activity, used as a tool for decision-making and financial planning.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity, allowing for variance analysis.