The ledger of Sage Hill Inc. at the end of the current year shows Accounts Receivable $78,000; Credit Sales $855,000; and Sales Returns and Allowances $36,000. (a) If Sage Hill uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Sage Hill determines that Matisse’s $750 balance is uncollectible. (b) If Allowance for Doubtful Accounts has a credit balance of $1,150 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 9% of accounts receivable. (c) If Allowance for Doubtful Accounts has a debit balance of $450 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 7% of accounts receivable.

Answer and Explanation:

The journal entries are shown below:

(a) Bad debt expense$750  

           To Accounts receivable  $750

(Being the bad debt expense is recorded)

(b) Bad debt expense$5,870  

           To Allowance for doubtful accounts  $5,870

(Being the allowance is recorded)

The computation is below:

Bad debt expense = Accounts receivable × estimated percentage - credit balance in allowance for doubtful accounts

= $78,000 × 9% - $1,150

= $5,870

(c) Bad debt expense$5,910  

        To Allowance for doubtful accounts  $5,910

(Being the allowance is recorded)

The computation is below:

Bad debt expense = Accounts receivable × estimated percentage + debit balance in allowance for doubtful accounts

= $78,000 × 7% + $450

= $5,910

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