The trial balance before adjustment of Risen Company reports the following balan

Question

The trial balance before adjustment of Risen Company reports the following balances:

nstructions

(a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be 6% of gross accounts receivable.

(b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $5,000 instead of a credit balance. How will this difference affect the journal entries in part (a)?

(c) what is the theoretical justification for the percentage -of-recievables method used to estimate bad debts?

Dr. Cr. Accounts receivable $300,000 Allowance for doubtful accounts $5,000 Sales (all on credit) 1,700,000 Sales returns and allowances 80,000

Explanation / Answer

1-

accounts receivables

300000

doubtful accounts

6% of 300000

18000

credit balance in allowance for doubtful account

5000

bad debt expense

13000

Journal entries

date

explanation

debit

credit

bad debt expense

13000

allowance for doubtfull account

13000

2-

accounts receivables

300000

doubtful accounts

6% of 300000

18000

debit balance in allowance for doubtful account

5000

bad debt expense

23000

Journal entries

date

explanation

debit

credit

bad debt expense

23000

allowance for doubtful account

23000

3-

justification for the % of receivables method is that company on the basis of overall receivables fix a rate on the basis of past experience that this percentage of receivables would be converted into bad debts

1-

accounts receivables

300000

doubtful accounts

6% of 300000

18000

credit balance in allowance for doubtful account

5000

bad debt expense

13000

Journal entries

date

explanation

debit

credit

bad debt expense

13000

allowance for doubtfull account

13000

2-

accounts receivables

300000

doubtful accounts

6% of 300000

18000

debit balance in allowance for doubtful account

5000

bad debt expense

23000

Journal entries

date

explanation

debit

credit

bad debt expense

23000

allowance for doubtful account

23000

3-

justification for the % of receivables method is that company on the basis of overall receivables fix a rate on the basis of past experience that this percentage of receivables would be converted into bad debts

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