The Garvey Sign Company Uses the Allowance Method in Accounting

question 93

Essay

The Garvey 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, 2013, and December 31, 2014, appear below:
$\begin{array}{lrr}&12 / 31 / 2013&12 / 31 / 2014\\\text { Net Credit Sales } & \$ 400,000 & \$ 500,000 \\\text { Accounts Receivable } & 80,000 & 100,000 \\\text { Allowance for Doubtful Accounts } & 4,000 & ?\end{array}$
Instructions
(a) Record the following events in 2014.
Aug. 10 Determined that the account of Kurt West for $900 is uncollectible.
Sept. 12 Determined that the account of Jill Lynch for $3,000 is uncollectible.
Oct. 10 Received a check for $300 as payment on account from Kurt West, whose account had previously been written off as uncollectible.
(b) Prepare the adjusting journal entry to record the bad debt provision for the year ended December 31, 2014.
(c) What is the balance of Allowance for Doubtful Accounts at December 31, 2014?

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Definitions:

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