Question

Prior to recording the recovery and collection of a $2,200 account receivable previously written off and...

Prior to recording the recovery and collection of a $2,200 account receivable previously written off and the adjusting entry for bad debt expense for the year, the general ledger reflected the following information:

Sales $2,544,000
Accounts Receivable, December 31 420,000
Allowance for Doubtful Accounts 1,450 (debit)
Required:
a. Compute the amount of the bad debt expense, assuming it is based on 1.8% of net sales.
b.

Prepare the adjusting entry for bad debts assuming it is based on 3% of the ending accounts receivable.

a. Compute the amount of the bad debt expense, assuming it is based on 1.8% of net sales.

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Answer #1

After entry for recovery and collection of a $2,200 account receivable previously written off, balance would be:

Sales:=$2,544,000

Accounts Receivable, December 31=$420,000

Allowance for Doubtful Accounts=$1,450-2200=-750 or we can say Credit Balance of $750

Now;

a)

Allowance Required:2544000*1.8%=45,792

Bad debt expense=Allowance required-Credit Balance in allowance=45972-750=$45,042

b)

Allowance Required:420000*3%=12600

Bad debt expense=Allowance required-Credit Balance in allowance=12600-750=$11,850

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