Estimating Bad Debts from Receivables Balances
The following information is extracted from Shelton
Corporation’s accounting records at the beginning of 2013:
Accounts Receivable
$64,000
Allowance for Doubtful Accounts
900
(credit)
During 2013, sales on credit amounted to $600,000, $558,000
was collected on outstanding receivables and $2,500 of receivables were written
off as uncollectible. On December 31, 2013, Shelton estimates its bad debts to
be 5% of the outstanding gross accounts receivable balance.
1. Prepare the journal entry necessary to record Shelton’s
estimate of bad debt expense for 2013.
Dec. 31
Bad
Debt Expense 6775
Allowance
for Doubtful Accounts 6775
2. Prepare the Accounts Receivable section of Shelton’s December
31, 2013 balance sheet.
Dec. 31
Accounts receivable 103500
Allowance for Doubtful Accounts 5175
Net accounts receivable 98325
3. Compute Shelton’s receivables turnover. If required,
round your answer to one decimal place.
Receivable Turnover Ratio = Net Credit sales / Average net
Receivables
600,000/98,325 = 6.1 (according to my accounting lab my
answer is wrong)
4. If Shelton Company uses IFRS, what might be the heading
for the accounts receivable section in Requirement 2?
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