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a) Avett Furniture Store has credit sales of $400,000 in 2014 and a debit balance of $600 in the Allowance for Doubtful Accounts at year
a) Avett Furniture Store has credit sales of $400,000 in 2014 and a debit balance of $600 in the Allowance for Doubtful Accounts at year end. As of December 31, 2014, $130,000 of accounts receivable remain uncollected. The credit manager prepared an aging schedule of accounts receivable and estimates that $7,000 will prove to be uncollectible. On March 4, 2015, the credit manager authorizes a write-off of the $1,200 balance owed by B. Fernitti. Instructions 1) Prepare the adjusting entry to record the estimated uncollectible accounts expense in 2014. [2] 2) Show the balance sheet presentation of accounts receivable on December 31, 2014. [2] 3) On March 4, before the write-off, assume the balance of Accounts Receivable account is $160,000 and the balance of Allowance for Doubtful Accounts is a credit of $3,000. Make the appropriate entry to record the write-off of the Ferntti account. Also show the balance sheet presentation of accounts receivable before and after the write-off. [2] b) What are the differences between direct write off method and allowance method of recording bad debt expense? Which method is more suitable with matching principle? Why? Give a suitable example with necessary journal entries under both methods? [4]
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