Question

At the end of the current year, the accounts receivable account has a debit balance of $2,950,000 and sales for the year total $27,400,000.
a. The allowance account before adjustment has a debit balance of $9,500. Bad debt expense is estimated at 3/4 of 1% of sales.

b. The allowance account before adjustment has a debit balance of $9,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $188,000.

c. The allowance account before adjustment has a credit balance of $31,400 Bad debt expense is estimated at 1/2 of 1% of sales.

d. The allowance account before adjustment has a credit balance of $31,400. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $175,000.

Required:

Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

Answer 1

Answer:

(a) Debit Bad debt expense                                           $215,000

    Credit Allowance for doubtful accounts                   $215,000

    (To record Bad debt expense during the period)

(b) Debit Bad debt expense                                           $197,500

    Credit Allowance for doubtful accounts                   $197,500

    (To record Bad debt expense during the period)

(c) Debit Bad debt expense                                           $105,600

    Credit Allowance for doubtful accounts                   $105,600

    (To record Bad debt expense during the period)

(d) Debit Bad debt expense                                           $143,600

    Credit Allowance for doubtful accounts                  $143,600

    (To record Bad debt expense during the period)

Explanation:

(a) If Bad debt expense is estimated at 3/4 of 1% of sales, this translates to:

0.75 x 1% x $27,400,000 = $205,500

The required amount of adjustment to Bad debt expense with $9,500 debit balance in the allowance account is $9,500 + $205,500 = $215,000

(b) If the estimated doubtful accounts is $188,000 with a debit balance of $9,500 in the allowance account, the required adjustment to Bad debt expense is $9,500 + $188,000 = $197,500

(c) If Bad debt expense is estimated at 1/2 of 1% of sales, this means:

0.5 x 1% x $27,400,000 = $137,000

With a credit balance of $31,400 in the allowance account, the adjustment to Bad debt expense becomes $137,000 - $31,400 = $105,600

(d) If the estimated doubtful accounts is $175,000 with a credit balance of $31,400 in the allowance account, the required adjustment to Bad debt expense is $175,000 - $31,400 = $143,600