Question

Santana Rey, owner of Business Solutions, realizes that she needs to begin accounting for bad debts expense. Assume that Business Solutions has total revenues of $50,000 during the first three months of 2018, and that the Accounts Receivable balance on March 31, 2018, is $22,017. Required: 1a. Prepare the adjusting entry needed for Business Solutions to recognize bad debts expense, which are estimated to be 2% of total revenues on March 31, 2018 (assume a zero unadjusted balance in the Allowance for Doubtful Accounts at March 31). 1b. Prepare the adjusting entry needed for Business Solutions to recognize bad debts expense, which are estimated to be 3% of accounts receivable on March 31, 2018 (assume a zero unadjusted balance in the Allowance for Doubtful Accounts at March 31). 2. Assume that Business Solutions' Accounts Receivable balance at June 30, 2018, is $20,650 and that one account of $87 has been written off against the Allowance for Doubtful Accounts since March 31, 2018. If S. Rey uses the method prescribed in part 1b, what adjusting journal entry must be made to recognize bad debts expense on June 30, 2018?

Answer 1

	Date	Account title and explanation	Debit	Credit
1a.	Mar. 31, 2018	Bad debt expense (50,000x2%)	$ 1,000
		Allowance for doubtful accounts		$ 1,000
1.b.	Mar. 31, 2018	Bad debt expense (22,017x3%)	$ 661
		Allowance for doubtful accounts		$ 661
2	June 30, 2018	Bad debt expense	$ 46.00
		Allowance for doubtful accounts		$ 46.00

Working note: