Question

During 2018, its first year of operations, Pave Construction provides services on account of $152,000. By the end of 2018, cash collections on these accounts total $106,000. Pave estimates that 30% 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

The adjustment for noncollectable accounts on December 31, 2018:

Debit Bad Debts Expense $13,800

Credit Allowance for Doubtful Account $13,800

Explanation:

In Pave Construction, 2018 is the first year of operations. The company provides services on account of $152,000.

By the end of 2018, cash collections on these accounts total $106,000.

At the end of 2018, Accounts Receivable (the uncollected accounts) has debit balance of $46,000 ($152,000 - $106,000 = $46,000)

Pave estimates that 30% of the uncollected accounts will be bad debts

Bad Debts Expense = 30% x $46,000 = $13,800

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

Debit Bad Debts Expense $13,800

Credit Allowance for Doubtful Account $13,800