Accounts Receivable $385,000
Allowance for Doubtful Accounts $ 2,000
(a) Based on the information given, which method of accounting for bad debts is Worcester Company using—the direct write-off method or the allowance method? How can you tell?
(b) Prepare the adjusting entry at December 31, 2008, for bad debts expense under each of the following independent assumptions.
(1) An aging schedule indicates that $11,750 of accounts receivable will be uncollectible.
(2) The company estimates that 1% of sales will be uncollectible.
(c) Repeat part (b) assuming that instead of a credit balance there is an $2,000 debit balance in Allowance for Doubtful Accounts.
(d) During the next month, January 2009, a $3,000 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off.
(e) Repeat part (d) assuming that Worcester uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.
(f) What type of account is Allowance for Doubtful Accounts? How does it affect how accounts receivable is reported on the balance sheet at the end of the accounting period?