The Manda Panda Company uses the allowance method to account for bad debts. At t
ID: 2476554 • Letter: T
Question
The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2016, the allowance account had a credit balance of $78,800. Credit sales for 2016 totaled $2,950,000 and the year-end accounts receivable balance was $610,000. During this year, $77,000 in receivables were determined to be uncollectible. Manda Panda anticipates that 3% of all credit sales will ultimately become uncollectible. The fiscal year ends on December 31.
Required: 1. Does this situation describe a loss contingency? No Yes
2. What is the bad debt expense that Manda Panda should report in its 2016 income statement?
Bad Debt Expense $___________________
3. Prepare the appropriate journal entry to record the contingency. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
4. Complete the table below to calculate the net realizable value (book value) Manda Panda should report in its 2016 balance sheet?
Accounts Receivable
End Bal
$610,000
Allowance for Uncollectible Accounts
Beg Bal
78,800
Yellow box
yellow box
yellow box
yellow box
End Bal
78,800
In the yellow boxes you have an option from : Blue boxes you fill the amounts.
Bad debit expense
Write-off of bad debts
Credit sales
Collection on account
Balance Sheet
Accts Receivable
Allowance for uncollectible accts
Net realizable value
Explanation / Answer
1 Yes situation describe a loss contingency, because there is a chance of no collection from doubtful accounts. 2 Calculation of bad debt expense that Manda Panda should report in its 2016 income statement: Total Credit sales for 2016 $ 2,950,000 Beginning balance in Allowance Account (Credit ) $ 78,800 Less: Accounts Written off $ (77,000) Available balance in Allowance Account (Credit ) $ 1,800 Estimated uncollectible Accounts (2950000*3%) $ 88,500 Bad Debts Expense = 88500 - 1800 = $ 86,700 3 Journal entry to record the bad debts Expense: Journal Entries: Account Titles and Explanations Debit Credit Bad Debts Expense $ 86,700 Allowance of Doubtful Accounts $ 86,700 (Being Allowance made for bad debts )
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