Question

Prepare the journal entry to record bad debt expense assuming Windsor Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,420 debit balance.

Answer 1

Answer:

                                                   DR.       CR.

(a)

Bad Debt Expense                  $2,000

Allowance for Doubtful Accounts            $2,000

(b)

Bad Debt Expense                  $5,420

Allowance for Doubtful Accounts            $5,420

Explanation:

a)

Allowance for Doubtful Accounts forthe year = Closing Account receivable x Rate of Allowance = $100,000 x 4% = $4,000

Allowance for Doubtful Accounts already has credit balance of $2,000 sot he net value of $2,000 ($4000- $2000) is adjusted in the journal entry.

b)

As the Allowance for Doubtful Accounts already had debit balance of $1,420but we have to make it as $4,000 credit balance because this is the contra asset account which normally has credit balance.

Adjustment amount = $4,000 + $1,420 = $5,420

* The data was missing in the question which is as follow

Duncan Company reports the following financial information before adjustments.

                                                                Dr.         Cr.

Accounts Receivable                    $100,000  

Allowance for Doubtful Accounts                       $2,000

Sales Revenue (all on credit)                 $900,000

Sales Returns and Allowance          $50,000