The Garvey Sign Company Uses the Allowance Method in Accounting

question 17

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: 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:

Mistake Of Value

An error made by one or both parties at the time of entering into a contract, regarding the value or worth of the subject matter of the contract.

Voidable

Refers to a contract that is valid and enforceable unless challenged and declared void by a party to the contract who is deemed to have been disadvantaged or defrauded.

Fraudulent Misrepresentation

The intentional provision of false statements or concealment of information to deceive or mislead another party.

Objective

A specific goal or aim that is intended to be achieved, often measurable and time-specific.