Question

Rogala Foods Inc. was formed in 2015 with the merger of Grouch Mayer and Tashamo Corporation. The company reported the following rounded amounts for the year ended January 3, 2016 (all amounts in millions):
Debits Credits
Accounts Receivable $ 1,130
Allowance for Doubtful Accounts $ 33
Sales (assume all on credit) 18,400
Required:

Assume Rogala uses 1/4 of 1 percent of sales to estimate its Bad Debt Expense for the year. Prepare the adjusting journal entry required for the year, assuming no Bad Debt Expense has been recorded yet.

Assume instead Rogala uses the aging of accounts receivable method and estimates that $81 of its Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at January 3, 2016, for recording Bad Debt Expense.

Prepare the journal entry for unadjusted balance in Rogala’s Allowance for Doubtful Accounts at January 3, 2016, was a debit balance of $21.

If one of Rogala’s customers declared bankruptcy, what journal entry would be used to write off its $10 balance?

Answer 1

Answer:

1)

Dr. Bad Debt Expense                         $13

Cr. Allowance for Doubtful Accounts $13

2)

Dr. Bad Debt Expense                         $48

Cr. Allowance for Doubtful Accounts $48

2)

Dr. Bad Debt Expense                         $67

Cr. Allowance for Doubtful Accounts $67

4)

Dr. Allowance for Doubtful Accounts $10

Cr. Account receivables                      $10

Explanation:

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Closing Value of the Allowance for Doubtful Accounts will be as follow

Closing Balance = $18,400 x 1% x 1/4 = $46

1) 1/4 of 1 percent of sales

As Allowance for Doubtful Accounts already have credit balance of $33, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $46 at the year end.

Adjustment Value = $46 - $33 = $13

2) Aging of accounts receivable method

Uncollectible account receivable = $81

As Allowance for Doubtful Accounts already have credit balance of $33, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $81 at the year end.

Adjustment Value = $81 - $33 = $48

3)

Uncollectible account receivable = $46

As Allowance for Doubtful Accounts already have credit balance of $21, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $46 at the year end.

Adjustment Value = $46 - $21 = $67