Question

During 2018, its first year of operations, Pave Construction provides services on account of $142,000. By the end of 2018, cash collections on these accounts total $101,000. Pave estimates that 25% of the uncollected accounts will be bad debts.Required:1. Record the adjustment for uncollectible accounts on December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

The adjustment for uncollectible accounts on December 31, 2018:

Debit Bad Debts Expense $10,250

Credit Allowance for Doubtful Account $10,250

Explanation:

In Pave Construction, 2018 is the first year of operations. The company provides services on account of $142,000. By the end of 2018, cash collections on these accounts total $101,000.

At the end of 2018, Accounts Receivable (the uncollected accounts) has debit balance of $41,000 ($142,000 - $101,000 = $41,000)

Pave estimates that 25% of the uncollected accounts will be bad debts

Bad Debts Expense = 25% x $41,000 = $10,250

The adjusting entry to record the bad debts expense will be:

Debit Bad Debts Expense $10,250

Credit Allowance for Doubtful Account $10,250