Fleming Sign Company Uses the Allowance Method in Accounting for Uncollectible

question 137

Essay

Fleming Sign Company uses the allowance method in accounting for uncollectible accounts. Past experience indicates that 6% of accounts receivable will eventually be uncollectible. Selected account balances at December 31, 2017, and December 31, 2018, appear below:
12/31/17 12/31/18
Net Credit Sales $400,000 $500,000
Accounts Receivable 60,000 80,000
Allowance for Doubtful Accounts 5,200 ?
Instructions
(a) Record the following events in 2018.
Aug. 10 Determined that the account of Sue King for $800 is uncollectible.
Sept. 12 Determined that the account of Tom Young for $3,700 is uncollectible.
Oct. 10 Received a check for $500 as payment on account from Sue King, whose account had previously been written off as uncollectible. She indicated the remainder of her account would be paid in November.
Nov. 15 Received a check for $300 from Sue King as payment on her account.
(b) Prepare the adjusting journal entry to record the bad debt provision for the year ended December 31, 2018.
(c) What is the balance of Allowance for Doubtful Accounts at December 31, 2018?

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute one product for another.

Income Effect

Economic principle that describes how a change in an individual's income affects their purchasing behavior.

Interest Rate

The percentage charged on a loan or paid on savings over a certain period of time, essentially the cost of borrowing money or the reward for saving.

Optimal Choice

The most efficient, advantageous selection or decision based on available information and constraints.