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11 January, 17:13

At the end of the current year, the accounts receivable account has a debit balance of $2,950,000 and sales for the year total $27,400,000.

a. The allowance account before adjustment has a debit balance of $9,500. Bad debt expense is estimated at 3/4 of 1% of sales.

b. The allowance account before adjustment has a debit balance of $9,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $188,000.

c. The allowance account before adjustment has a credit balance of $31,400 Bad debt expense is estimated at 1/2 of 1% of sales.

d. The allowance account before adjustment has a credit balance of $31,400. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $175,000.

Required:

Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

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Answers (1)
  1. 11 January, 19:42
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    (a) Debit Bad debt expense $215,000

    Credit Allowance for doubtful accounts $215,000

    (To record Bad debt expense during the period)

    (b) Debit Bad debt expense $197,500

    Credit Allowance for doubtful accounts $197,500

    (To record Bad debt expense during the period)

    (c) Debit Bad debt expense $105,600

    Credit Allowance for doubtful accounts $105,600

    (To record Bad debt expense during the period)

    (d) Debit Bad debt expense $143,600

    Credit Allowance for doubtful accounts $143,600

    (To record Bad debt expense during the period)

    Explanation:

    (a) If Bad debt expense is estimated at 3/4 of 1% of sales, this translates to:

    0.75 x 1% x $27,400,000 = $205,500

    The required amount of adjustment to Bad debt expense with $9,500 debit balance in the allowance account is $9,500 + $205,500 = $215,000

    (b) If the estimated doubtful accounts is $188,000 with a debit balance of $9,500 in the allowance account, the required adjustment to Bad debt expense is $9,500 + $188,000 = $197,500

    (c) If Bad debt expense is estimated at 1/2 of 1% of sales, this means:

    0.5 x 1% x $27,400,000 = $137,000

    With a credit balance of $31,400 in the allowance account, the adjustment to Bad debt expense becomes $137,000 - $31,400 = $105,600

    (d) If the estimated doubtful accounts is $175,000 with a credit balance of $31,400 in the allowance account, the required adjustment to Bad debt expense is $175,000 - $31,400 = $143,600
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