Question

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable$434,000Debit Allowance for Doubtful Accounts 1,360Debit Net Sales 2,210,000Credit All sales are made on credit. Based on past experience, the company estimates 3.0% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense

Answer 1

Answer:

The adjusting entry to be made at the end of the current year to record its estimated bad debts expense will be:

Debit Bad debt expense $67,660

Credit Allowance for doubtful accounts $67,660

(To record bad debt expense)

Explanation:

The company uses the percent of sales method to determine its bad debts expense.

3.0% of credit sales  ($2,210,000) = $66,300

Balance in Allowance for Doubtful Accounts $1,360 Debit

Required bad debt expense = $66,300 + $1,360 = $67,660

The addition of the opening debit balance is necessary in order to reinstate the allowance account to $66,300.