Question

At the end of the current year, the accounts receivable account has a debit balance of $762,000 and sales for the year total $8,640,000.

a. The allowance account before adjustment has a credit balance of $10,300. Bad debt expense is estimated at 1/2 of 1% of sales.
b. The allowance account before adjustment has a credit balance of $10,300. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $33,000.
c. The allowance account before adjustment has a debit balance of $7,900. Bad debt expense is estimated at 3/4 of 1% of sales.
d. The allowance account before adjustment has a debit balance of $7,900. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $65,600.

Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

1.____
2.____
3.____
4.____

Answer 1

Answer:

a. Adjustment for bad debts expenses in scenario a - $ 32,900

b. Adjustment for bad debts expenses in scenario b - $ 22,700

c. Adjustment for bad debts expenses in scenario c - $ 72,700

d. Adjustment for bad debts expenses in scenario d - $ 73,500

Explanation:

Computation of bad debts adjustment under scenario a

Receivables balance                                                                   $    762,000

Sales                                                                                             $ 8,640,000

Estimated bad debts expenses 1/2 % of sales                           $      43,200

Pre adjustment balance of allowance for uncollectible            $ (     10,300)

Adjustment to provide doubtful accounts                                  $      32,900

Computation of bad debts adjustment under scenario b

Estimated bad debts expenses based on ageing                     $      33,000

Pre adjustment balance of allowance for uncollectible            $ (     10,300)

Adjustment to provide doubtful accounts                                  $      22,700

Computation of bad debts adjustment under scenario c

Receivables balance                                                                   $    762,000

Sales                                                                                             $ 8,640,000

Estimated bad debts expenses 3/4 % of sales                           $     64,800

Pre adjustment balance of allowance for uncollectible DR.      $       7,900

Adjustment to provide doubtful accounts                                  $      72,700

The pre adjustment balance is a debit balance of $ 7,900, so it has to be added to the required allowance balance

Computation of bad debts adjustment under scenario d

Estimated bad debts expenses based on ageing                     $      65,600

Pre adjustment balance of allowance for uncollectible  DR      $        7,900

Adjustment to provide doubtful accounts                                  $      73,500

The pre adjustment balance is a debit balance of $ 7,900, so it has to be added to the required allowance balance