Providing for Doubtful Accounts At the end of the current year, the accounts rec

Question

Providing for Doubtful Accounts

At the end of the current year, the accounts receivable account has a debit balance of 6,125,000 and net sales for the year total $66,800,000..

A. The allowance account before adjustment has a debit balance of 18,000. Bad debt expense is estimated at 3/4 of 1% of net sales.

B. The allowance account before adjustment has a debit balance of 18,000. An aging of the accounts in the customer ledger indicates estimated doubtful accouints of $475,000.

c. The allowance account before adjustment has a credit balance of $10,000. Bad debt expense is estimated at 1/2 of 1% of net sales.

D. The allowance account before adjustment has a credit balance of $ 10,000. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $ 360,000.

         Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions ( A through D) listed above.

A. $ _______________

B. $ ________________

C. $ _________________

D. $ _________________

Explanation / Answer

A. Bad debt expense is estimated at ¾ of 1% of net sales. Net sales is $66,800,000. 1% of Net sales is $66,800,000 * 1% = $668,000. ¾ of $668,000 = $501,000. Allowance account before adjustment has a debit balance of $18,000. It should have a credit balance of $501,000. So amount of adjusting entry to be provided will be $18,000 + $501,000 = $519,000

B. Estimated doubtful accounts is $475,000. Allowance account before adjustment has a debit balance of $18,000. So the amount of adjusting entry to be provided will be $18,000 + $475,000 = $493,000.

C.1% of net sales as calculated above is $668,000. ½ of $668,000 = $334,000. Allowance account before adjustment has a credit balance of $10,000. So the amount of adjusting entry to be provided will be $334,000 - $10,000 = $324,000

D.Estimated doubtful accounts is $360,000. Allowance account before adjustment has a credit balance of $10,000. So the amount of adjusting entry to be provided will be $360,000 - $10,000 = $350,000.

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