34. Buzz Corporation uses the allowance method to account for its projected bad

Question

34. Buzz Corporation uses the allowance method to account for its projected bad debt. At the end of 2007 Buzz estimates that $15,000 of the existing accounts receivable will not be collected (this was determined after analyzing an aging report). Buzz reported the following account activity during 2007 Accounts Receivable balance at 1/1/2007 Allowance for doubtful accounts 1/1/2007 Cash Collections Write Offs of customer accounts Credit Sales-2007 $200,000 $10,000 $895,000 $5,000 $1,000,000 Given the above information, what is the ending balance in the Accounts Receivable account? A. $290,000 B. $305,000 C. $300,000 D. $285,000 E. $310,000 200,000 aon ,000 ,004,00 7,990 300

Explanation / Answer

37. a) $ 5,000 WILL BE TREATED AS BAD DEBT EXPENSE WHEN BUZZ CORPORATION USES BAD DEBTS AS A % OF CREDIT SALES THE ENTRY WOULD BE

UNCOLLECTABLE ACCOUNTS/BAD DEBTS EXPENSE $5,000

ALLOWANCE FOR DOUBTFUL ACCOUNTS $5000

b) WHEN BUZZ USES AGING METHOD FOR BAD DEBTS ESTIMATION OF $ 15,000 ,THE BAD DEBTS EXPENSE WILL BE RECOGNISED TO THE EXTENT IT EXCEEDS THE OPENING BALANCE OF ALLOWANCE FOR DOUBTFUL DEBTS WHICH ON 1/1/2007 IS $ 10,000

OR TO PUT SIMPLY  Opening balance $ 10,000  

bad debts as per aging method $ 15,000

now only remainig $ 5000 will be treated as bad debt expense

therefore entry would be

UNCOLLECTABLE ACCOUNTS EXPENSE/BAD DEBTS $5,000

ALLOWANCE FOR DOUBTFUL ACCOUNTS $5000

therefore from a) and b) total bad debts is $10,000

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