Question

DB’s Doughnuts creates delicious up-scale pastries for different events in the Tampa Bay area, and makes all sales on credit. As of December 31^st, 2020, the company’s sales information and accounts receivable information is as follows (normal balances before adjustments):

Accounts receivable                                        $365,000

Allowance for Doubtful Accounts                 $12,000

1. DB’s Doughnuts currently estimates that 12% of its accounts receivable will be uncollectible. Calculate and prepare the adjusting entry for the company’s bad debt expense as of 12/31/20.

DATE	ACCOUNT	DEBIT	CREDIT

DB’s Doughnuts’ controller decided to re-evaluate the bad debt adjustment, and prepared an aging of the accounts receivable account as follows:

Accounts Receivable Aging	Amount	% Deemed Uncollectible
0-30 days old	$150,000	2%
31-60 days old	$136,000	10%
61-90 days old	$56,500	25%
Over 90 days	$23,000	85%

2. Calculate and prepare the adjusting entry for the company’s bad debt expense as of 12/31/20 (using the new approach, of aging the accounts receivable)

3. Using the new approach, what is the company’s net realizable value of receivables?

Answer 1

1. Calculate and prepare the adjusting entry for the company’s bad debt expense as of 12/31/20.

DATE	ACCOUNT	DEBIT	CREDIT
Dec 31	Bad debt expense (365000*12%-12000)	31800
	Allowance for doubtful accounts		31800

2) Calculate net realizable value

Account receivable aging	Amount	% Deemed uncollectible	$ Uncollectible
0-30 days old	150000	2%	3000
31-60 days	136000	10%	13600
61-90 days	56500	25%	14125
Over 90	23000	85%	19550
Total	365500		50275

Net realizable value = 365500-50275 = 315225