The following information was abstracted from the records of the Norrick Corpora
ID: 2379990 • Letter: T
Question
The following information was abstracted from the records of the Norrick Corporation
Accounts receivable, December 31, 2014 $ 590,000
Allowance for doubtful accounts before adjustment $ 18,000 (DR)
December 31, 2014
Sales 2014 $ 2,180,000
Sales Discounts 2014 $ 18,000
Sales Returns 2014 $ 27,000
Prepare the adjusting entry for doubtful accounts expense under each of the following assumptions:
1. 3 percent of outstanding accounts receivable are uncollectible
2. 1.5 percent of 2014 net sales are uncollectible
3. An aging schedule of the accounts shows that $21,400 of the accounts are uncollectible
Explanation / Answer
1. 3 percent of outstanding accounts receivable are uncollectible
Accounts Receivables A/c Dr $300
To Allowance for Doubt ful Debts $300
W.N: $590000 x 3% = $17700 Hence, Allowance should be created for $17700 but existing balance is $18000.
Hence,(18000 - 17700) $300 is to be adjusted.
2. 1.5 percent of 2014 net sales are uncollectible
Allowance for Doubt ful Debts Dr $14025
To Accounts Receivables A/c $14025
W.N : ($ 2180000 - $18000 - $27000) x 1.5% = $32025.Hence, Allowance should be created for $32025 but existing balance is $18000.Hence,($32025 - $18000) $14025 is to be adjusted.
3. An aging schedule of the accounts shows that $21,400 of the accounts are uncollectible
Allowance for Doubt ful Debts Dr $3400
To Accounts Receivables A/c $3400
W.N :Allowance should be created for $21,400 but existing balance is $18000.Hence,($21,400 - $18000) $3400 is to be adjusted.
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