The Bad News Bears (BNB) Company have had trouble collecting all of their accoun
ID: 2578721 • Letter: T
Question
The Bad News Bears (BNB) Company have had trouble collecting all of their accounts receivable in prior years. The credit department has prepared an aging schedule showing the likelihood of collecting different groups of receivables. This schedule applies for the year ended 12-31-2017. This information is based on past history. Accounts Receivable Months Outstanding Percentage Deemed $45,000 55,000 50,000 30,000 6 months 98% 96% 90% 80% The current balance in the Allowance for Bad Debts account is a $7,100 CREDIT. REQUIRED 1. Using the aging of AR method, compute the amount of bad debt expense for 2017 and record the proper adjusting entry. Show all computations clearly!!! (3 points) BAD DEBT EXPENSE COMPUTATION: ENTRY:DR: CR: 2. Show how the AR section of the Balance Sheet would appear at 12-31-2017 after taking into account the 2017 adjusting entry. (2 points)Explanation / Answer
Calculation of estimated uncollectable amount =45000*.02 +5141005000*04 +50000*0.1 +30000*0.2
=900+2200+5000+6000
=14100.
12/31 Bad debt expense(14100-7100) dr $7000
toallowance for doubtt ful debts $7000
2) Accounts recievable = 180000
Less:allowancd for doubtful debts = (14100)
= 165900
3)There will be no chnge in ar section but gross accounting recievable and allowance for doubtful debts will be reduced by$ 10000 each
i.e before write off =(130000-40000) =90000
after write off = (120000-30000) = $90000
4)There will be no effect on net income because when a write off is made it will effect the allowance of doubtful debts and accounts recievable account both are balance sheet items only and the write off entry has no connection with profit and loss statement.
write off entry is Allowance for accounts recievable dr
to accounts recievable
There will be no change in net accounts recievable,by writingoff a bed debt means we are identifying the unnamed AR and there by reducing the Accounts recievabel and allowance for doubt ful debts by the same amount only leaving no effect on net accounts recievable.
5)A bad debt estimate reduces the net income as it is directly related to cost of doing business.
It also effects the accounts recievable also either by crediting to AR diretctly or by means of allowance of doubtful debts.
the over all effect is it will reduce the accounts recievable.
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