Q2-17 Marking guide Q2-17 8% Percentage of sales method for bad debts:
Following are some selected transactions of David Jones (DJ) during 2013 and 2014. Reporting date is 31 December. DJ uses the allowance method and makes adjusting and closing entries on reporting date.
2013
31 December DJ estimated that bad debt expense for the year was 2% on credit sales of $1,200,000 and recorded that amount as expense.
31 December Made the closing entry for bad debt expense.
10 January DJ sold $6000 of inventory to Mills & Brown (MB) on account (Ignore cost of sales).
2014

20 June DJ wrote off the receivable from MB after repeated efforts to collect.
25 July DJ also failed to collect $13,000 receivables from BK and $10,000 from MM and see no hope to collect them in future.
15 August DJ received an apology letter for paying late and $600 from MB.
31 December DJ estimated that bad debt expense for the year was 1.5% on credit sales of $2,000,000, and recorded that amount as expense.
31 December Made the closing entry for bad debt expense.
Required:
1. Open general ledger T accounts for Allowance for doubtful debts and Bad debt expense. All accounts begin with a zero balance.
2. Record the transactions in the general journal and post to the two ledger accounts.
3. The 31 December 2014 balance of Accounts receivable is $500,000. Show how Accounts receivable would be reported on the balance sheet at that date.