Percent of Sales Method At the end of the current year, Accounts Receivable has

Question

Percent of Sales Method At the end of the current year, Accounts Receivable has a balance of $585,000; Allowance for Doubtful Accounts has a credit balance of $5,500; and sales for the year total $2,630,000. Bad debt expense is estimated at 1/4 of 1% of sales. 1. Determine the amount of the adjusting entry for uncollectible accounts. $ 2. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable $ 585,000 Allowance for Doubtful Accounts $ Bad Debt Expense $ 3. Determine the net realizable value of accounts receivable. $

Explanation / Answer

1. Determine the amount of the adjusting entry for uncollectible accounts.

Amount for adjusting entry = 2630000*1%*1/4 = 6575

2. Determine the adjusted balances :

Account receivable = 585000

Allowance for doubtful account = 5500+6575 = 12075

Bad debt expense = 6575

Determine the net realizable value of accounts receivable

Net realizable value = 585000-12075 = 572925

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