Consider the following facts for Company B: At December 31, 2014, the trial bala

Question

Consider the following facts for Company B:

At December 31, 2014, the trial balance showed the following balances:

Accounts Receivable = $280,000 debit balance
Allowance for Doubtful Accounts = $1,500 credit balance
Sales Revenue = $650,000 credit balance

Additional information:

- An aging schedule indicates that $12,500 of accounts receivable will be uncollectible.
- Company A estimates that 2% of sales will be uncollectible.

Which of the following statements is true about the adjusting entry for Bad Debt Expense at December 31, 2014?

Explanation / Answer

Answer: (1) An aging schedule indicates that $12500 of accounts receivable will be uncollectible.
12500 - 1,500 = 11000
Dr Bad Debt Expense 11000
Cr Allowance for Doubtful Accounts 11000

Allowance for Doubtful Accounts now has a credit balance of 12500.
(2) The company A estimates that 2% of sales will be uncollectible.
650,000 x 2% = 13000
Dr Bad Debt Expense 13000
Cr Allowance for Doubtful Accounts 13000

d. Bad Debt Expense under the Percentage of Receivable method will be less than the Bad Debt Expense under the Percentage of Sales method by $2,000.

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