Question

Providing for Doubtful Accounts

At the end of the current year, the accounts receivable account has a debit balance of $1,110,000 and sales for the year total $12,590,000.

1. The allowance account before adjustment has a debit balance of $15,000. Bad debt expense is estimated at 3/4 of 1% of sales.
2. The allowance account before adjustment has a debit balance of $15,000. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $48,000.
3. The allowance account before adjustment has a credit balance of $9,400. Bad debt expense is estimated at 1/4 of 1% of sales.
4. The allowance account before adjustment has a credit balance of $9,400. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $78,000.

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

Answer 1

a.

Bad debts expense = 3/4 of 1% of sales

= 12,590,000 x 1% x 3/4

= $94,425

b.

Allowance for doubtful accounts, existing = $15,000 (debit)

Allowance for doubtful accounts,ending = $48,000

Bad debts expense = Allowance for doubtful accounts,ending + Allowance for doubtful accounts,existing

= 48,000+15,000

= $63,000

c.

Bad debts expense = 1/4 of 1% of sales

= 12,590,000 x 1% x 14

= $31,475

d.

Allowance for doubtful accounts, existing = $9,400

Allowance for doubtful accounts,ending = $78,000

Bad debts expense = Allowance for doubtful accounts,ending - Allowance for doubtful accounts,existing

= 78,000-9,400

= $68,600

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