XXX uses the allowance method to write off all bad debts. On 12/31/15 an aged ac
ID: 2487116 • Letter: X
Question
XXX uses the allowance method to write off all bad debts. On 12/31/15 an aged accounts receivable indicated that bad debt expense would be $55,000. The balance in the Allowance account on that date was a credit of $6,000. It was also estimated that the bad debts expense for the year would be 2% of the years credit sales of $3,000,000.
Required: A. Assume that you want to inform the banking industry what your bad debt exposure will be, make the journal entry required on 12/31/15.
B. Assume that you want to inform the stockholders what your bad debt expense will be, make the required journal entry on 12/31/15.
Explanation / Answer
A Bad Debt provision requires as per aging 55,000 Credit balance of Allowance a/c existing 6,000 Additional Bad debt provision required= 49,000 Journal Entry on 12/31/15 for Banks Account Title Dr $ Cr $ Allowance of Uncollectible a/cs 49,000 Bad Debt Expense 49,000 ( as the question is ambiguous , assuming lower bad debt expense shown to bank for better credit rating ) B % of credit sales method Years credit sale = 3,000,000 2% estiated bad debt of credit sales= 60,000 Journal Entry on 12/31/15 for Shareholders Account Title Dr $ Cr $ Allowance of Uncollectible a/cs 60,000 Bad Debt Expense 60,000
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