Question

Kraft Foods Inc. is the second-largest food company in the world. Assume the company recently reported the following amounts in its unadjusted trial balance (in millions) as of December 31, 2017:

	Debits			Credits
Accounts Receivable	$	4,833
Allowance for Doubtful Accounts				$	129
Sales (assume all on credit)					42,201

1. Assume Kraft uses ½ of 1 percent of sales to estimate its Bad debt expense for the year. Prepare the adjusting journal entry required for the year, assuming no Bad debt expense has been recorded yet.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions.)

2. Assume instead that Kraft uses the aging of accounts receivable method and estimates that $233 million of its Accounts Receivable will be uncollectable. Prepare the adjusting journal entry required at December 31, 2017, for recording Bad Debt Expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions.)

3. Assume instead that Kraft uses the aging of accounts receivable method and estimates that $233 million of its Accounts Receivable will be uncollectable. Also, assume that the unadjusted balance in Kraft’s Allowance for Doubtful Accounts at December 31, 2017, was a debit balance of $20 million. Prepare the adjusting journal entry required at December 31, 2017, for recording bad debt expense. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions.)

4. If one of Kraft’s main customers declared bankruptcy in 2018, what journal entry would be used to write off its $15 million balance? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions.)

Answer 1

1) Adjusting entry

date	account and explanation	Debit	Credit
Dec 31	Bad debt expense (42201*1%*1/2)	211.005
	Allowance for doubtful accounts		211.005
	(To record bad debt expense)

2) Adjusting entry

date	account and explanation	Debit	Credit
Dec 31	Bad debt expense (233-129)	104
	Allowance for doubtful accounts		104
	(To record bad debt expense)

3) Adjusting entry

date	account and explanation	Debit	Credit
Dec 31	Bad debt expense (233+20)	253
	Allowance for doubtful accounts		253
	(To record bad debt expense)

4) Journal entry

date	account and explanation	Debit	Credit
2018	Allowance for doubtful accounts	15
	Account receivable		15
	(To record write off)