Brown Cow Dairy uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $19,000; (2) up to 120 days past due, $5,000; and (3) more than 120 days past due, $3,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 2 percent, (2) 11 percent, and (3) 30 percent, respectively. At December 31 (end of the current year), the Allowance for Doubtful Accounts balance is $830 (credit) before the end-of-period adjusting entry is made. Data during the current year follow: a. During December, an Account Receivable (Patty's Bake Shop) of $780 from a prior sale was determined to be uncollectible; therefore, it was written off immediately as a bad debt. b. On December 31, the appropriate adjusting entry for the year was recorded. Required: 1. Give the required journal entries for the two items listed above. 2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for the current year. Disregard income tax considerations.

1a.Dec-31

Dr Allowance for doubtful accounts$780

Accounts receivable (Patty's Bake Shop) Cr $780

1b .Dec-31

Dr Bad debt expense$1,000

Cr Allowance for doubtful accounts $1,000

2a. Bad debt expense $1,000

2b. Doubtful accounts $25,170

Explanation:

1. Preparation of the journal entries

First step is to adjust for estimated bad debt expense for current year

Aged Accounts Receivable Estimated Percentage UncollectibleEstimated Amount Uncollectible

Not yet due19,000*2%=$380

Up to 120 days past due5,000*11%=$550

Over 120 days past due3,000*30%=$900

Estimated balance in allowance for Doubtful Accounts $1,830

Less Current balance in allowance for Doubtful Accounts ($830)

Bad Debt Expense for the year $1,000

($1,830-$830)

Now let prepare the Journal entry:

1a. Dec-31

Dr Allowance for doubtful accounts$780

Accounts receivable (Patty's Bake Shop) Cr $780

(To record Write off accounts receivable)

1b.Dec-31

Dr Bad debt expense$1,000

Cr Allowance for doubtful accounts $1,000

(To record allowance of doubtful account)

2aCalculation to Show how the amounts related Bad Debt Expense would be reported on the income statement and balance sheet for the current year.

BROWN COW DAIRY COMPANY

Income Statement (Partial)

As of December 31

Operating expenses:

Bad debt expense $1,000

2b. Calculation to Show how the amounts related to Accounts Receivable would be reported on the income statement and balance sheet for the current year.

BROWN COW DAIRY COMPANY

Balance Sheet (Partial)

As of December 31

Current assets:

Accounts receivable (Patty's Bake Shop) $27,000

(Less)Allowance for doubtful accounts ($1,830)

Accounts receivable, net of allowance for Doubtful accounts $25,170

Accounts receivable =$ 19,000+$5,000+$3,000 Accounts receivable =$27,000

Allowance for doubtful accounts = $380+$550+$900

Allowance for doubtful accounts = $1,830

Therefore the amounts related to Accounts Receivable and Bad Debt Expense that would be reported on the income statement and balance sheet for the current year will be :

Bad debt expense $1,000

Doubtful accounts $25,170

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation: