Question

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts receivable $ 446,000 Debit Allowance for Doubtful Accounts 1,360 Credit Net Sales 2,210,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.0% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Answer 1

Answer:

The adjusting entry which is to be recorded is shown below:

Explanation:

The adjusting entry which is to be recorded is as:

Bad Debt Expense A/c..................................... Dr $14,740

         Allowance for Doubtful Accounts A/c...............Cr $14,740

As the company records the bad debt expense at the end of the present year

Working Note:

As the company used the percent of receivables sales

Amount = Accounts receivables × Percentage of ending receivable

= $446,000 × 3.0%

= $13,380

Bad debt expense amount = Amount - Debit balance of allowance for doubtful accounts

= $13,380 + $1,360

= $14,740