Question
On January 1, 2015, the accounts receivable general ledger account of Gilt Ltd. had a debit balance of $400,000 and the allowance for doubtful accounts
On January 1, 2015, the accounts receivable general ledger account of Gilt Ltd. had a debit balance of $400,000 and the allowance for doubtful accounts account had a credit balance of $42,000. Gilts cost of sale is 60%, and it uses a perpetual inventory system. The following transactions occurred during the year: 1. Credit sales totaled $3,200,000 and cash sales totaled $380,000. 2. A $4,000 accounts receivable previously written off was collected in full. 3. Sales return from credit sales totaled $5,000 and all of the merchandise were put back to shelf for resale. 4. Cash collections of accounts receivable equaled $3,000,000 (excluding the cash collection in 2 above). 5. Accounts receivable of $35,000 were determined to be uncollectible and were written off.
Required Prepare journal entries for the year of 2015, including year-end adjusting journal entries to record bad debt expense, assuming the company estimates that: 1. 2% of credit sales will ultimately become uncollectible. 2. 5% of outstanding accounts receivable will ultimately prove uncollectible.
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