Reference no: EM132597219

MAllister Inc is a manufacturer that makes all sales on a 30-days credit terms. Annual sales are approximately $10 million. At the end of 2009 accounts receivable were presented in the Balance Sheet as below:

Acounts Receivable $1,000,000

Less: Aloowance for

Doubtful accounts $25,000

During 2010, $300,000 in accounts receivable were written off as uncollectible. Of these amounts written off, receivables totalling $24,000 were unexpectedly collected. At the end of 2010, an aging of accounts receivable indicated a need for a $ 40,000 allowance to cover possible failure to collect the accounts currently outstanding.

MAllister Inc. makes adjusting entries in its accounting records only at year end.

Question a) Explain the difference between making an allowance for bad debts, and writing off a bad debt. Explain how each case is treated and shown in accounting.

Question b) Prepare one journal entry to summarize all accounts written off against the allowance for doubtful accounts in 2010.

Question c) Prepare entries to record the $24,000 in accounts receivable which were unexpectedly collected.

Question d) Prepare adjusting entries on 31 December 2010 to increase the allowance for doubtful accounts to $40,000