Question

1. You are auditing Valley Publishing's accounts receivable at December 31, 2019, and the client informed you that it uses the allowance method. Valley Publishing estimates that 1.5% of all receivable balance is un-collectible. You are provided with the following information:                    

Accounts receivable balance - $125,000
    Allowance for doubtful account - $1,925

1. The client informed you that an accounts receivable for $1,520 is deemed un-collectible. Propose the adjusting journal entry(ies) necessary to reflect the above transaction(s). (2 pts)

Determine if the allowance account balance is reasonable and if not, propose an adjusting entry to address the deficiency

Answer 1

a.)	Account Titles	Debit $	Credit $
	Allowance for doubtful account	1,520
	Accounts Receivable		1,520
b.)	Accounts Receivable revised balance	$ 123,480	=125000-1520
	Allowance for doubtful account revised balance	405	=1925-1520
	Should be balance of Allowance for doubtful account	1,852	=123480*1.5%
	Deficiency in balance of allowance for doubtful account	$ 1,447	=1852-405
	Account Titles	Debit $	Credit $
	Bad Debt Expense	1,447
	Allowance for doubtful account		1,447