At December 31, 2001, the trial balance of Lexington Company contained the following amounts before adjustment:

Instructions

(a) Based on the information given, which method of accounting for bad debts is Lexington Company using—the direct write-off method or the allowance method? How can you tell?

(b) Prepare the adjusting entry at December 31, 2001, for bad debts expense assuming that the aging schedule indicates that $11,750 of accounts receivable will be uncollectible.

(c) Repeat part

(b) assuming that instead of a credit balance there is a $1,000 debit balance in the Allowance for Doubtful Accounts.

(d) During the next month, January 2002, a $5,000 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off.

(e) Repeat part

(d) assuming that Lexington uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.

(¢) > what type of account is the allowance for doubtful accounts? How does it affect how accounts receivable is reported on the balance sheet at the end of the accounting period?

Transcribed Image Text:

Accounts Receivable Allowance for Doubtful Accounts Sales Debits Credits $400,000 $ 1,000 950,000