Question

The trial balance before adjustment of Vegen Company reports the Accounts Receivable with a balance of $600,000. All accounts have a normal balance unless stated otherwise.

Required: Please show all calculations.

(a) Assume that the Allowance for Doubtful Accounts has a normal balance of $8,000. Prepare the entry for estimated bad debts assuming that doubtful accounts are estimated to be 5% of accounts receivable.

(b) Assume that the Allowance for Doubtful Accounts has a debit balance of $8,000. Prepare the journal entry for the estimated bad debts assuming that doubtful accounts are estimated to be 6% of accounts receivable.

(c) Vegen Company received notice that ABC, Co., one of Vegen's credit customers, filed for bankruptcy. ABC, Co's account with Vegen totals $2,650. Prepare the journal entry to write-off ABC Co's account.

(d) State and explain the impact on the Balance Sheet and the Income Statement for the entry you recorded in (c) above.

Answer 1

a) Journal entry

Date	account and explanation	Debit	Credit
	Bad debt expense (600000*5%-8000)	22000
	Allowance for doubtful account		22000
	(To record bad debt)

b) Journal entry

Date	account and explanation	Debit	Credit
	Bad debt expense (600000*6%+8000)	44000
	Allowance for doubtful account		44000
	(To record bad debt)

c) Journal entry

Date	account and explanation	Debit	Credit
	Allowance for doubtful accounts	2650
	Account receivable		2650
	(To record write off)

d) There is no impact on balance sheet and income statement for write off