Question

A business has the following financial data at the end of December: Accounts receivable                       100,000   &nbs

  1. A business has the following financial data at the end of December:

Accounts receivable                       100,000                          Sales revenue-cash  25,000

Allowance for doubtful accounts      1,000 (credit balance)        Sales revenue-credit125,000

  1. Assume the business uses the income statement method (percent of sales method) and a 0.7000% estimation rate.  Prepare any necessary journal entries on December 31.  

  1. Assume the business uses the balance sheet method (percent of accounts receivable method) and a 0.7000% estimation rate.  Prepare any necessary journal entries on December 31.
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Answer #1

A)

Bad Debt Expense = Credit sales x Percentage estimated as uncollectible

= 125,000 x 0.7000%

= $875

Journal      

Dec. 31

Bad debt expense

875

Allowance for doubtful accounts

875

B)

Bad Debt Expense = (Accounts receivable ending balance x percentage estimated as uncollectible) + existing debit balance in allowance for doubtful accounts

= 100,000 x 0.7000% + 1,000

= 700 + 1,000

=$1,700

Journal      

Dec. 31

Bad debt expense

1,700

Allowance for doubtful accounts

1,700
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