Direct write-off and allowance methods: matching approach. The December 31, 20X2, year-end trial balance of Targa Company revealed the following account information:
|
Debits |
Credits |
|
Accounts Receivable |
$252,000 |
|
Allowance for Uncollectible Accounts |
$ 3,000 |
|
Sales |
855,000 |
Instructions
a. Determine the adjusting entry for bad debts under each of the following condi tions:
(1) An aging schedule indicates that $12,420 of accounts receivable will be uncollectible.
(2) Uncollectible accounts are estimated at 2% of net sales.
b. On January 19, 20X3, Targa learned that House Company, a customer, had declared bankruptcy. Present the proper entry to write off House’s $950 balance using the allowance method.
c. Repeat the requirement in part (b), using the direct write-off method.
d. In light of the House bankruptcy, examine the allowance and direct write-off methods in terms of their ability to properly match revenues and expenses.