Question

Percent of Sales Method

At the end of the current year, Accounts Receivable has a balance of $835,000; Allowance for Doubtful Accounts has a credit balance of $7,500; and sales for the year total $3,760,000. Bad debt expense is estimated at 1/2 of 1% of sales.

a. Determine the amount of the adjusting entry for uncollectible accounts.
$

b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense.

	Adjusted Balance Debit (Credit)
Accounts Receivable	$
Allowance for Doubtful Accounts	$
Bad Debt Expense	$

c. Determine the net realizable value of accounts receivable.
$

Answer 1

a.

Sales = $3,760,000

Bad debts expense = 1/2 of 1% of sales

= 3,760,000 x 1% x 1/2

= $18,800

Amount of adjusting entry for uncollectible account = $18,800

b.

Accounts receivable = $835,000

Allowance for doubtful accounts, adjusted = Allowance for doubtful accounts, beginning + Bad debt expense

= 7,500+18,800

= $26,300

Bad debts expense = $18,800

	Adjusted Balance Debit (Credit)
Accounts Receivable	$835,000
Allowance for Doubtful Accounts	$26,300
Bad Debt Expense	$18,800

c.

Net realizable value of accounts receivable = Accounts receivable- Allowance for doubtful accounts, adjusted

= 835,000-26,300

= $808,700

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