Question

Assume the following unadjusted account balances at the end of the accounting period for Emmie Company: Accounts Receivable, $300,000; Allowance for Doubtful Accounts, $4,200 (debit balance); and Net sales, $3,600,000.

If Emmie’s past experience indicates credit losses of 1% of net sales, the adjusting entry to estimate doubtful accounts is:

Select one:

A.

Bad Debts Expense

40,200

Allowance for Doubtful Accounts

40,200

B.

Bad Debts Expense

31,800

Allowance for Doubtful Accounts

31,800

C.

Bad Debts Expense

36,000

Accounts Receivable

36,000

D.

Bad Debts Expense

36,000

Allowance for Doubtful Accounts

36,000

Answer 1

Bad debts expense:
Net Sales revenue		36,00,000
Multiply: % of Bad debts	1%
Bad debts expenses		36000
Journal entry:
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Bad debts expense			36000
	Allowance for doubtful accounts		36000
	(for recognizing the bad debts expense)
Answer is D.
Bad debts			36000
Allowance for doubtful accounts	36000