Question

# Providing for Doubtful Accounts At the end of the current year, the accounts receivable account has...

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

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

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