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

Question

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?

Bad Debt Expense under the Percentage of Receivable method will be greater than the Bad Debt Expense under the Percentage of Sales method by $1,000.

Bad Debt Expense under the Percentage of Receivable method will be greater than the Bad Debt Expense under the Percentage of Sales method by $4,000.

Bad Debt Expense under the Percentage of Receivable method will be less than the Bad Debt Expense under the Percentage of Sales method by $3,000.

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.

Explanation / Answer

Allowance for Doubtfull Account = $1500

bed Debt expenses as per Ageing of Account Receivable = $12500

bed Debt expenses as per percentage of Sales = $13000 (650000*2% = $13000)

hence adjustment entry related to bad debt expenses is $11000 ($12500 - $1500)

hance Adjustment entry for bad debt expenses as per Percentage of receivable accounts are $11000

and Adjustment entry for bad debt expenses as per Percentage of Sales are $13000

hence fourth statement is correct that :

bad debts expenses under percentage of Account receivable method will be less then bad debt expenses as per percentage od sale method by $2000 as per as adjustment entry is concern

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