Question

Our company had the following normal account balances prior to any adjustments being made:

Sales	$500,000
Accounts Receivable	$1,000,000
Allowance for Doubtful Accounts	$13,000 credit balance
Credit Sales	$190,000
Sales Returns	$50,000

Based on this information, answer questions 29 – 31

1. If we believe that 2 percent of Credit Sales will be uncollectable, we should make the following journal entry:

1. Debit Bad Debt Expense $3,800, credit Allowance for Doubtful Accounts $3,800.
2. Debit Bad Debt Expense $2,000, credit Allowance for Doubtful Accounts $2,000.
3. Debit Bad Debt Expense $3,500, credit Allowance for Doubtful Accounts $3,500.
4. Debit Bad Debt Expense $4,000, credit Allowance for Doubtful Accounts $4,000.

2. If we believe that 2 percent of Account Receivables will be uncollectable, we should make the following journal entry:

1. Debit Bad Debt Expense $70,000, credit Allowance for Doubtful Accounts $70,000.
2. Debit Bad Debt Expense $13,000, credit Allowance for Doubtful Accounts $13,000.
3. Debit Bad Debt Expense $20,000, credit Allowance for Doubtful Accounts $20,000.
4. Debit Bad Debt Expense $7,000, credit Allowance for Doubtful Accounts $7,000.

3. Following our recognition of Bad Debt Expense using either method, we write off a customer account for $12,000 due to her bankruptcy. The effect of this write-off is?

1. Decrease assets by $12,000.
2. Decrease net income by $12,000.
3. Decrease accounts receivable and net realizable receivables by $12,000.
4. Have no effect.

Answer 1

29) Journal entry

Date	account and explanation	Debit	Credit
	Bad debt expense (190000*2%)	3800
	Allowance for doubtful accounts		3800

So answer is a) Debit Bad Debt Expense $3,800, credit Allowance for Doubtful Accounts $3,800.

30) Journal entry

Date	account and explanation	Debit	Credit
	Bad debt expense (20000-13000)	7000
	Allowance for doubtful accounts		7000

So answer is d) Debit Bad Debt Expense $7,000, credit Allowance for Doubtful Accounts $7,000.

31) Following our recognition of Bad Debt Expense using either method, we write off a customer account for $12,000 due to her bankruptcy. The effect of this write-off is?

So answer is d) Have no effect