Ulysis Corporation makes and sells clothing to fashion stores throughout the coun- try. On December 31, 2000, before adjusting entries were made, it had the following account balances on its books:

3. Now assume that on March 3, 2001, it was determined that a $\$ 64,000$ account receivable from Petite Corners is uncollectible. Record the bad debt, assuming:

a. The direct write-off method is used.

b. The allowance method is used.
4. Further assume that on June 4, 2001, Petite Corners paid this previously written off debt of $\$ 64,000$. Record the payment, assuming:

a. The direct write-off method had been used on March 3 to record the bad debt

b. The allowance method had been used on March 3 to record the bad debt.
5. Interpretive Question: Which method of accounting for bad debts, direct writeoff or allowance, is generally used? Why?

Transcribed Image Text:

Accounts receivable Sales revenue, 2000 (60% were credit sales). Allowance for bad debts (credit balance)... $ 2,320,000 16,000,000 4,000 1. Make the appropriate adjusting entry on December 31, 2000, to record the al- lowance for bad debts if uncollectible accounts receivable are estimated to be 3 percent of accounts receivable. 2. Make the appropriate adjusting entry on December 31, 2000, to record the allow- ance for bad debts if uncollectible accounts receivable are estimated on the basis of an aging of accounts receivable; the aging schedule reveals the following: Current 1-30 days past due $1,200,000 800,000 31-60 days past due 200,000 Balance of Accounts Receivable Percent Estimated to Become Uncollectible 1/2 of 1 percent 1 percent 4 percent 61-90 days past due 80,000 20 percent Over 90 days past due. 40,000 30 percent