Question

Exercise 7-9 Percent of receivables method LO P3 a. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 6% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method. b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $12,300 credit. c. Prepare the adjusting entry to record bad debts expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $1,300 debit.

Answer 1

Question Completion:

Assume that the Accounts Receivable balance is $570,000.

Answer:

a. The balance of the Allowance for Doubtful Accounts = $34,200.

b. Adjusting Entry to record Bad Debts Expense:

Debit Bad Debts Expense $21,900

Credit Allowance for Doubtful Accounts $21,900

To record bad debts expense and bring the balance of the Allowance for Doubtful Accounts to a credit balance of $34,200 ($21,900 +$12,300).

c. Adjusting Entry to record Bad Debts Expense:

Debit Bad Debts Expense $35,500

Credit Allowance for Doubtful Accounts $35,500

To record bad debts expense and bring the balance of the Allowance for Doubtful Accounts to a credit balance of $34,200 ($35,500 - $1,300).

Explanation:

a) Data and Calculations:

Accounts receivable balance = $570,000

Allowance for Doubtful Accounts = $34,200 ($570,000 * 6%)

Unadjusted balance in the Allowance for Doubtful Accounts = $12,300 credit

Bad Debts Expense = $21,900 ($34,200 - $12,300)

Unadjusted balance in the Allowance for Doubtful Accounts = $1,200 debit

Bad Debts Expense = $35,500 ($34,200 + $1,300)