Question

Prepare the journal entry to record bad debt expense assuming Novak Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,470 debit balance. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

Additional information:

Novak Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $155,400 Allowance for Doubtful Accounts $3,890 Sales Revenue (all on credit) 800,700 Sales Returns and Allowances 50,330

Answer:

net credit sales = total sales revenue - sales returns and allowances = $800,700 - $50,330 =  $750,370

accounts receivables = $155,400

allowance for doubtful accounts = $3,890 (credit balance)

A) estimated bad debts = 4% of accounts receivables = 4% x $155,400 = $6,216

since the current balance of allowance for doubtful accounts is $3,890, then the adjusting entry should be = $6,216 - $3,890 = $2,326:

Dr Bad debt expense 2,326

    Cr Allowance for doubtful accounts 2,326

B)  estimated bad debts = 4% of accounts receivables = 4% x $155,400 = $6,216

since the current debit balance of allowance for doubtful accounts is $1,470, then the adjusting entry should be = $6,216 + $1,470 = $7,686:

Dr Bad debt expense 7,686

    Cr Allowance for doubtful accounts 7,686