Percent of sales method: At the end of the current year, Accounts Recievable has

Question

Percent of sales method: At the end of the current year, Accounts Recievable has a balance of $325,000; Allowance for Doubtful Accounts has a credit balance of $3,900; and net sales for the year total $4,500,000. Bad debt expense is estimated at 1/2% of 1% of net sales. Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balance of Accounts Receivable, Allowand for Doubtful Accounts, and Bad debt expense; and (c) the net realizable value of accounts receivable.

Explanation / Answer

(a) the amount of the adjusting entry for uncollectible accounts; 4,500,000*.005 = 22,500 Debit: Bad debt expense 22,500 Credit: Allowance for doubtful accounts 22,500 (b) the adjusted balance of Accounts Receivable, Allowand for Doubtful Accounts, and Bad debt expense; and Accounts receivable = 325,000 Allowance for doubtful accounts = 3,900 + 22,500 = 26,400 (c) the net realizable value of accounts receivable. Net realizable value = 325,000 – 26,400 = 298,600

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