Question

Use the following information for Questions 44 and 45: Your company shows the following data at the end of its first year: Credit sales for the year $1,000,000 Accounts Receivable balance 100,000 Allowance for Doubtful Accounts 4,000 credit balance

44. If the bad debt is estimated as 1% of credit sales, the adjusting entry for bad debt expense includes a debit for . . .

a. $14,000. b. $10,000. c. $6,000. d. $0.

45. If your company estimates that it will not collect 5% of its accounts receivable, the year-end adjustment to Allowance For Doubtful Accounts will be . . .

a. a credit of $1,000. b. a credit of $5,000. c. a debit of $1,000. d. a debit of $5,000.

Answer 1

44.

Credit sales = $1,000,000

Percentage uncollectibles = 1% of credit sales

Bad debt expense = Credit sales x Percentage of uncollectible

= 1,000,000 x 1%

= $10,000

The adjusting entry for bad debt expense includes a debit for $10,000

Correct option is b.

45.

Allowance for doubtful accounts, existing = $4,000 (credit)

Percentage uncollectibles = 5% of Accounts receivable

Bad debt expense = (Accounts receivable x Percentage of uncollectible)- Allowance for doubtful accounts, existing

= (1,000,000 x 5%)- 4,000

= 5,000-4,000

= $1,000

The year-end adjustment to Allowance For Doubtful Accounts will be a credit of $1,000

Correct option is a.

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