8. If a company completes the year end with a debit balance in the Allowance for

Question

8. If a company completes the year end with a debit balance in the Allowance for Doubtful Accounts it means: a. is the normal balance for that account b. indicates that actual bad debt write-offs have been less than what was estimated c. cannot occur if the percentage of receivables method of estimating bad dindicates that actual bad debt write-offs have exceeded previous e. something was incorrect with the journal entry and needs to be fixed. debts is used provisions for bad debts 9. Bunker Co. uses the percent of sales method of estimating uncollectible expenses. Based onpast history, 2% of credit sales are expectedto be uncollectible Sales for the current year are $5,550,000. Which of the following is correct regarding the entry to record estimated uncollectible receivables? a. Cash will be debited b. Bad Debt Expense will be credited c. Allowance for Doubtful Accounts will be credited d. Accounts Receivable will be debited e. Accounts Receivable will be credited 10. Wutzdoff Inc aging of its company's accounts receivable indicates the estimate of uncollectible receivables totals $7.900. If Allowance for Doubtful Accounts has a $700 record the bad debt expense for the period will require a a. debit to Bad Debt Expense for $8,600 b. debit to Bad Debt Expense for $7,900 c. debit to Bad Debt Expense for $7,200 d. credit to Allowance for Doubtful Accounts for $700 e. credit to Allowance of Doubtful Accounts for $8,600

Explanation / Answer

8.(Ans.d) If a company completes the year-end with a debit balance in the allowance for doubtful accounts then it means that actual bad debt write-offs have exceeded provision for bad debts because provision for bad debts generally have credit balance which is based on the estimated amount of bad debts but when estimated amount is less than actual bad debts amount then such account has the debit balance.

9.(Ans.c) To record estimated uncollectible receivables, Allowance for the doubtful account will be credited. Allowance for a Doubtful account is the estimation of the amount which is non-recoverable from the account receivables.Therefore the Journal entry for the recording of such expenditure is:-

Bad Debts A/c Dr.

To Allowance for Doubtful Account

10. (Ans.c)The adjustment to record the bad debts expense for the period will require a debit to the bad debts expense for $7200 because we have $700 allowance for doubtful accounts, that means we have already booked bad debts expense of $700.Total uncollectible receivables are shown as $7900, therefore we will record bad debts expense of the difference amount i.e.$7200($7900-$700).

Therefore the Journal entry for the recording of such expenditure is:-

Bad Debts A/c Dr. $7200

To Allowance for Doubtful Account $7200

11. $6600 i.e ($1100000*0.6%) should be debited to bad debts expense when the year-end adjusting entry is prepared and the entry should be:-

  

Bad Debts A/c Dr. $6600

To Allowance for Doubtful Account $6600

(Ans.d)But based on company estimation entry is prepared as:-

Bad Debts A/c Dr. $10000

To Allowance for Doubtful Account $10000

Excess provision amount:- $10000-$6600=$3400

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