3. Claireco uses the allowance method to write off all bad debts. On 12/31/17 an

Question

3. Claireco uses the allowance method to write off all bad debts. On 12/31/17 an aged accounts receivable indicated that bad debt expense would be $35,000. The balance in the Allowance account on that date was a credit of $8,000. It was also estimated that the bad debts expense for the year would be 1% of the years credit sales of $4,000,000 Required: A. Assume that you want to inform the banking industry what your bad debt exposure will be, make the journal entry required on 12/31/17 Stock holda B. Assume that you want to inform the-banking industry what your bad debt exposure will be, make the journal entry required on 12/31/17

Explanation / Answer

1) Journal entry for Bad debt expense for the year.

Bad Debt Expense A/c Debit $40,000 (!% of $4,000,000)

Allowance for Bad Debts A/c Credit $40,000

A) Bad Debts exposure for Banks can be $48,000 ($80,000 +$40,000)

B) Bad Debts exposure for Stock holder can be $35,000 (as the actual aged bad debt, which will not be collected)

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