Question

At the end of the current year, Accounts Receivable has a balance of $600,000; Allowance for Doubtful Accounts has a credit balance of $3,500; and net sales for the year total $3,000,000. Bad debt expense is estimated at 1/2 of 1% of net sales.

Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance of Doubtful Accounts; and Bad Debt Expense; and (c) the net realizable value of accounts receivable.

Answer 1

Ans.a	Bad debts expenses (adjusting entry amount for uncollectibles) =   Net sales * 1% * 1 / 2
				3000000 * 1% * 1 /2
				15000
Ans.b	Adjusted balances :
	Accounts receivables   =	600000
	Allowance for doubtful accounts   = Bad debts expenses + Credit balance of accounts receivables
			15000 + 3500
			18500
	Bad debts expenses      =	15000
Ans.c	Net realizable value = Accounts receivables - Adjusted balance of allowance account
		600000 - 18500
		581500