(AICPA Adapted) At January 1, 2010, the credit balance in the allowance for doub
ID: 2353405 • Letter: #
Question
(AICPA Adapted)At January 1, 2010, the credit balance in the allowance for doubtful accounts of the Master Company was $400,00. For 2010, the provision for doubtful accounts is based on a percentage of net sales. Net sales for 2010 were $50,000,000. Based on the latest available facts, the 2010 provision for doubtful accounts is estimated to be 0.7% of net sales. During 2010 , uncollectible receivables amounting to $410,000 were written off against the allowance for doubtful accounts.
Required: Prepare a schedule computing the balance in Master's allowance for doubtful accounts at December 31,2010. Show supporting computations in good form.
Explanation / Answer
Net credit sales x Bad debt percentage =Prov for Bad debt expense ie $50M*0.7% = $350,000 Record the entry : allowance account currently has a credit balance of $400,000 (Not sure as you have put $400,00. So Pl use correct figure here). The journal entry to record the Prov for bad debts would be as follows: Debit Credit ------- ------- Bad debt expense 350,000 Master Allow for doubtful accounts 350,000 After the above entry, the Master allowance account would have a balance of $750,000 (i.e., $350,000+ $400,000). Now $410,000 is written-off. So Allowance for doubtful accounts balance will be $750,000-$410,000 = $340,000
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