Percent of Sales Method At the end of the current year, Accounts Receivable has a balance of $2,150,000; Allowance for Doubtful Accounts has a debit balance of $10,500; and sales for the year total $51,850,000. Bad Debt Expense is estimated at 1/4 of 1% of sales. a. Determine the amount of the adjusting entry for uncollectible accounts. $ 129,625 b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable $ 2,150,000 Allowance for Doubtful Accounts $ Bad Debt Expense $ 129,625 c. Determine the net realizable value of accounts receivable. $

Adjusting entries are recorded before the issuance of the financial statements of the company. Adjusting entries are recorded on the last day of the financial year. The main aim of the adjusting entries is to recognize the income and expenses of the business but not properly recorded in the books. Recording the adjusting entries would provide a fair and accurate presentation of the financial statements.

[tex]\text{Amount of bad debt} = \text{Sales} \times \text{Bad debts\% } \\\text{Amount of bad debt}= \$51,850,000 \times \text{1/4\%}\\\text{Amount of bad debt}=\$129,625\ \\[/tex]

Thus, the amount of the adjusting entry for uncollectable account is $129,625.

(b)

Accounts receivable:

Accounts receivable are the customers of the company who have not paid the amount for the sales of the goods. Accounts receivables are the current assets of the company. Goods are sold to the customer but the customer has not paid for the sales so the amount due is recorded as the accounts receivables.

Provision for doubtful debts:

Provision for doubtful debts is based on the conservative principle of the accounting. The business should record the estimated number and amount of the accounts receivables which would not be received in the future. The business records this amount in the provision for doubtful debts accounts.

Bad debts:

Bad debt is the amount of the accounts receivables which is not received by the business. It is a loss of the company and recorded in the income statement (debit side).

Calculate the adjusting balance of the accounts receivables:

The adjusting balance of accounts receivables is the ending balance of the accounts receivables. So the adjusting balance of accounts receivable will be $2,150,000.

Thus, the adjusting balance of the accounts receivables is $2,150,000.

Calculate the adjusting balance of allowances for doubtful debts:

The adjusting balance of the doubtful debts is calculated by subtracting the allowance for doubtful debt from the amount of the bad debts of the current year.

[tex]\text{Adjusting allowance for doubtful debts} =\left( \text{Bad debts} - \text{Closing allowance} \right)\\\text{Adjusting allowance for doubtful debts} = \$ 129,625-\$ 10,500\\\text{Adjusting allowance for doubtful debts} = \$ 119,125[/tex]

Thus, the adjusting allowance for doubtful debts is $119,125.

Calculate the adjusting balance of bad debts expenses:

The adjusting balance of bad debts expenses is the calculated amount of bad debts. It is $129,625.

Thus, the adjusting balance of the bad debts is $129,625.

(c)

Net realizable value (NRV):

Net realizable value is the approximate sales price of the asset. It is the amount which would be realized at the time of the sales.

Calculate the net realizable value of accounts receivables:

[tex]\text{NRV of accounts receivables} = \text{Accounts receivables balance} - \text{Doubtful debt allowances}\\\text{NRV of accounts receivables}=\$ 2,150,000-\$ 119,125\\\text{NRV of accounts receivables}=\$ 2,030,875[/tex]

Thus, the net realizable value of accounts receivables is $2,030,875.

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Answer details:

Grade: Senior School

Subject: Cost accounting

Chapter: Budgeting

Keywords: Budgeting, Percentage of sales method, Accounts receivables, Net realizable value, Allowance for bad debts, Bed debts, financial statements, Adjusting balance of the doubtful debts, Accounting receivables, Adjusting entry, Uncollectable accounts, Adjusting balance, Adjusted balance of accounts receivables.