Question

Farr Co. elects to use the percentage-of-sales basis in 2017 to record bad debt expense. It estimates that 2% of net credit sales will become uncollectible. Salas revenues are $829,000 for 2017, sales returns and allowances are $56,900, and the allowance for doubtful accounts has a credit balance of $9,000.

Prepare the adjusting entry to record bad debt expenses in 2017.

Answer 1

Answer:

Dr Bad Debt Expense   $15,442

Cr Allowance for Doubtful Debts $15,442    

Explanation:

Under the percentage of sales basis, allowances for doubtful accounts are as under:

Allowance for doubtful accounts = (Net Sales - Other Allowances) * %age

Here

(Net sales - Other Allowances) is $772,100 ($829,000 - $56,900).

Percentage is 2%

By putting values, we have:

($829,000 - $56,900) * 2% = $15,442

So the double entry would be:

Dr Bad Debt Expense   $15,442

Cr Allowance for Doubtful Debts $15,442

Remember that previous year doubtful debts are not used for calculating current year allowances for doubtful accounts.

Answer 2

The adjusting entry to record the bad debt expenses is Debit to Bad Debt Expense for $15,442 and Credit to Allowance for Doubtful Debts for $15,442.

Under the percentage of sales basis, the allowances for doubtful accounts equals [(Net Sales - Other Allowances) * Percentage}

 

Given Information

Net sales = $829,000

Other Allowances = $56,900

Percentage = 2%

Allowances for doubtful accounts = ($829,000 - $56,900) * 2%

Allowances for doubtful accounts = $772,100 * 0.02

Allowances for doubtful accounts  = $15,442

The adjusting entry of the bad debt expenses in 2017 is as follows:

Date  Account titles and explanation     Debit         Credit

          Bad Debt Expense                         $15,442

               Allowance for Doubtful Debts                   $15,442

           (Being the adjusting entry for the Allowance)

In conclusion, the adjusting entry to record the bad debt expenses is Debit to Bad Debt Expense for $15,442 and Credit to Allowance for Doubtful Debts for $15,442.

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