Woodlawn Case Part 3

Topics: Generally Accepted Accounting Principles, Mathematics, Accounts receivable Pages: 3 (672 words) Published: November 25, 2012
Case Part 3
Report for the CFO
There are several necessary journal entries that have been made to adjust the unadjusted trial balance. For Allowance for doubtful accounts:
1. In 2009, $ 58,621.84 was directly written off to bad debt expense reflecting the amounts owed by customers who had gone bankrupt during the year. The journal entry would have been recorded as Dr Bad debt expense 58,621.84

Cr Account receivable 58,621.84 To record the uncollectable amount due to customer bankruptcy. The conditions of using the direct write-off method is either for companies in their first year of operations, or for whom uncollectible accounts are immaterial. Woodlawn does not fit either case. Therefore, it is wrong for Woodlawn to use the direct write-off method. The following journal entry is what should have been recorded, Dr Allowance for doubtful account 58,621.84

Cr Account receivable 58,621.84 To record the uncollectible amount due to customer bankruptcy. Therefore, the following adjusted entry is made to correct the write-off of $58,621.84. Dr. Allowance for doubtful account 58,621.84

Cr. Bad debt expense 58,621.84
To record the correction of error made in write-off.
2. Historically, bad debt has averaged out to approximately 1.5% of revenues. Therefore, we estimate that bad debt in 2009 would be 1.5% of revenue. The journal entry is the following, Dr. Bad debt expense 20,279.28*

Cr. Allowance for doubtful account20,279.28
To record the estimated uncollectible amount.
*(Calculation: 1.5%*$1,351,951.83=20,279.28)
3. As Tim mentioned that Woodlawn has received $93,256.41 that’s over 90 days past due since August 31, 2010. There is no journal entry needed to be done, since it had past the fiscal year end. 4. Woodlawn has not received $69,942.13 from Erie Limited that’s...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Case Study Part 3 Essay
  • case assignment 3 Essay
  • Woodlawn Engineering Case Study Essay
  • Case 3 Essay
  • Case 3 Essay
  • Case 3 Essay
  • Case 3 Research Paper
  • Case 3 Research Paper

Become a StudyMode Member

Sign Up - It's Free