Use the following data to answer questions from Part I and Part II below: On Dec

Question

Use the following data to answer questions from Part I and Part II below: On December 31, 2008, the unadjusted trial balance of K&A; Inc., included the following accounts: Debit Credit $900,000 Sales (90% represent credit sales) Accounts Allowancc for Doubtful Accounts 300 Part I: Assume K&A; estimates bad debts expense as 1% of credit sales. 1. The adjusting entry on December 31, 2008 would include a debit to what account A. Accounts Receivabl B. Allowance for Doubtful Accounts C. Bad Debts Expense D. Sales E. None of the above 2. The adjusting entry on December 31, 2008 would include a credit to what account? A. Accounts Receivabl B. Allowance for Doubtful Accounts C. Bad Debts Expense D. Sales E. None of the above 3. Refer to the two previous questions. The amount of the entry is: 4. The net realizable value of accounts receivable reported on the December 31,2008 balance shect, gfier the adjusting journal entry, is: Assume the Allowance for Doubtful Accounts had a $300 debir balance on December 31, 2008: 5. The amount of Bad Debt Expense recorded (the adjusting entry) on December 31, 2008 would be: The net realizable value of accounts receivable reported on the December 31, 2008 balance sheet, after the adjusting journal entry, would be: A. B. Part II: Asume K&A; estimates that 3 % gross accounts receivable is uncollectible. 6. The adjusting entry on December 31, 2008 would include a debit to what account? A. Accounts Receivabl B. Allowance for Doubtful Accounts C. Bad Debts Expense D. Sales E. None of the above 7.The adjusting entry on December 31, 2008 would include a credir to what account? F. Accounts Receivable G. Allowance for Doubtful Accounts H. Bad Debts Expense I. Sales I. None of the above 8 Refer to the two previous questions. The amount of the entry is: 9.The net realizable value of accounts reccivable reported on the December 31,2008 balance sheet, afier the adjusting journal entr is: 10 Assume the Allowance for Doubtful Accounts had a $300 debit balance on December 31, 2008: A. B. The amount of Bad Debt Expense recorded (the adjusting entry) on December 31, 2008 would be: The net realizable value of accounts receivable reported on the December 31, 2008 balance sheet, after the adjusting journal entry, would be:

Explanation / Answer

Part I: Bad debts expense 1% of credit sales

1. Answer: Option C. Bad Debts Expense

2. Answer: Option B. Allowance for Doubtful Accounts

3. Amount of the adjusting entry: 1% x (90% x $900,000) = 1% x $810,000 = $8,100

4. Net realizable value of accounts receivable = $300,000 – ($300 + $8,100) = $300,000 - $8,400 = $291,600

5.A. Bad debt expense = $8,100

5.B. Net realizable value of accounts receivable = $300,000 – ($8,100 - $300) = $300,000 - $7,800 = $292,200

Par II: 3% of year-end gross accounts receivable is uncollectible

6. Answer: Option C. Bad Debts Expense

7. Answer: Option G. Allowance for Doubtful Accounts

8. Amount of the adjusting entry: (3% x $300,000) - $300 = $8,700

9. Net realizable value of accounts receivable = $300,000 – $9,000 = $291,000

10.A. Bad debt expense: $300 + $9,000 = $9,300

10.B. Net realizable value of accounts receivable = $300,000 - $9,000 = $291,000

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