Question

Providing for Doubtful Accounts

At the end of the current year, the accounts receivable account has a debit balance of $666,000 and sales for the year total $7,550,000.

1. The allowance account before adjustment has a credit balance of $9,000. Bad debt expense is estimated at 1/2 of 1% of sales.
2. The allowance account before adjustment has a credit balance of $9,000. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $28,800.
3. The allowance account before adjustment has a debit balance of $8,600. Bad debt expense is estimated at 1/4 of 1% of sales.
4. The allowance account before adjustment has a debit balance of $8,600. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $71,400.

Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

a

b

c

d

Answer 1

a.

Bad debts expense = 1/2 of 1% of sales

= 7,550,000 x 1% x 1/2

= $37,750

b.

Allowance for doubtful accounts, existing = $9,000

Allowance for doubtful accounts, ending = $28,800

Bad debts expense = Allowance for doubtful accounts, ending - Allowance for doubtful accounts,existing

= 28,800-9,000

= $19,800

c.

Bad debts expense = 1/4 of 1% of sales

= 7,550,000 x 1% x 1/4

= $18,875

d.

Allowance for doubtful accounts, existing = $8,600 (debit)

Allowance for doubtful accounts, ending = $71,400

Bad debts expense = Allowance for doubtful accounts, ending + Allowance for doubtful accounts,existing

= 71,400+8,600

= $80,000

Please give a positive rating if you are satisfied with this solution and if you have any query kindly ask.

Thanks!!!