During 2012, Gauthier's Camera Shop had sales revenue of ($ 190,000), of which ($ 95,000) was on

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During 2012, Gauthier's Camera Shop had sales revenue of \(\$ 190,000\), of which \(\$ 95,000\) was on credit. At the start of 2012, Trade receivables showed a \(\$ 10,000\) debit balance, and the allowance for doubtful accounts showed a credit balance of \(\$ 800\). Collections of trade receivables during 2012 amounted to \(\$ 68,000\). On December 31,2012 , a trade receivable (J. Doe) of \(\$ 1,500\) from a prior year was determined to be uncollectible; therefore, it was written off immediately as a bad debt. On the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt at 2 percent of credit sales for the year.

Required:

1. Prepare the required journal entries on December 31, 2012 (end of the accounting period).

2. Show how the amounts related to bad debt expense and trade receivables would be reported on the income statement for 2012 and the statement of financial position at December 31, 2012. Disregard income tax considerations.

3. On the basis of the data available, does the 2 percent rate appear to be reasonable? Explain.

4. There are two alternative methods that can be used to determine the amount of bad debt expense for the year. Do you have a preference for either of these methods? Explain.

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Financial Accounting

ISBN: 9780070001497

4th Canadian Edition

Authors: Patricia A. Libby, Daniel Short, George Kanaan, Maureen Libby Gowing, Robert Libby

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