At the end of the year the unadjusted trail balance of Angel Provisions included
ID: 2388661 • Letter: A
Question
At the end of the year the unadjusted trail balance of Angel Provisions included the following accounts: If Angle uses the balance sheet approach to estimate uncollectable accounts expense, and aging the accounts receivable indicates the estimated uncollectible portion to be $15,175, what will the uncollectible accounts expense for the year be? If the income statement approach to estimating uncollectible accounts expense is followed, and uncollectible accounts expense is estimated to be 1.5% of net credit sales, what is the amount of uncollectible accounts expense for the year?Explanation / Answer
a) Since she has estimated the allowance for doubtful accounts to be $15,175, we have to make this item on the balance sheet equal to that by adding to it.
15, 175 - 2, 075 = $13,100 <- this is the additional allowance for doubtful accounts
Our journal entry would be:
Debit
Bad Debt Expense $13,100
Credit
Allowance for Doubtful Accounts $13,100
b) This time, the income statement approach estimates it to be 1.5% of net credit sales.
Our credit sales our 80% of Sales, so:
Credit Sales = 1,250,000 *.80 = 1,000,000
Credit Sales = $1,000,000
Bad Debt Expense = Credit Sales * 1.5%
Bad Debt Expense = $1,000,000 *.015
Bad Debt Expense = $15,000
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