At December 31, 2024, the trial balance of Darby Company contained the following amounts before adjustment:

Instructions
a. Prepare the adjusting entry at December 31, 2024, to record bad debt expense, assuming that the aging schedule indicates that $11,750 of accounts receivable will be uncollectible.
b. Repeat part (a) assuming that, instead of a credit balance, there is a $1,000 debit balance in Allowance for Doubtful Accounts.
c. Calculate the carrying amount of accounts receivable for Darby based on the answer in part (b).
d. During the next month, January 2025, a $3,000 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off.
e. What type of account is Allowance for Doubtful Accounts? How does it affect how accounts receivable is reported on the balance sheet at the end of the accounting period?

Taking It Further

The manager at Darby wants to increase bad debt expense in 2024 so that net income will not be too high. The company controller disagrees with the manager. Why would the controller disagree with the manager on this issue? Is there an ethical component that should be considered?

Transcribed Image Text:

Accounts Receivable Allowance for Doubtful Accounts Sales Revenue Debit $385,000 Credit $ 1,000 970,000