Question

Cullumber Company uses the percentage-of-receivables basis to record bad debt expense. Accounts receivable (ending balance) $605,000 (debit) Allowance for doubtful accounts (unadjusted) 4,700 (debit) The company estimates that 3% of accounts receivable will become uncollectible. (a) Prepare the adjusting journal entry to record bad debt expense for the year. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit (b) What is the ending (adjusted) balance in Allowance for Doubtful Accounts? Ending (adjusted) balance in Allowance for Doubtful Accounts $ (c) What is the cash (net) realizable value? Cash (net) realizable value $

Answer 1

Answer:

a. Journal entry

b. $18,150

c. $586,850

Explanation:

a. The adjusting journal entry is as follows

Bad debt expense A/c Dr

  To Allowance for doubtful debts

(Being bad debt expense is recorded)\

The computation of the bad debt expense is shown below:

= Account receivable × estimated percentage given  + debit balance of allowance for uncollectible accounts

= $605,000 × 3% + $4,700

= $18,150 + $4,700

= $22,850

b. The adjusted balance in Allowance for Doubtful Accounts is $18,150

c. The cash realizable value is

= $605,0000 - $18,150

= $586,850