Percent of Sales Method At the end of $8,000; and sales for the year total $4,05

Question

Percent of Sales Method At the end of $8,000; and sales for the year total $4,050,000. Bad debt expense is estimated at 1.25% of sales. a. Determine the amount of the adjusting entry for uncollectible accounts the current year, Accounts Receivable has a balance of $900,000; Allowance for Doubtful Accounts has a credit balance of b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable Allowance for Doubtful Accounts Bad Debt Expense c. Determine the net realizable value of accounts receivable.

Explanation / Answer

Answer a.

Amount of Adjusting Entry for Uncollectible = 1.25% * Sales
Amount of Adjusting Entry for Uncollectible = 1.25% * $4,050,000
Amount of Adjusting Entry for Uncollectible = $50,625

Answer b.

Accounts Receivable = $900,000

Allowance for Doubtful Accounts = Credit Balance of Allowance for Doubtful Accounts + Amount of Adjusting Entry for Uncollectible
Allowance for Doubtful Accounts = $8,000 + $50,625
Allowance for Doubtful Accounts = $58,625

Bad Debt Expense = $50,625

Answer c.

Net Realizable Value = Accounts Receivable - Allowance for Doubtful Accounts
Net Realizable Value = $900,000 - $58,625
Net Realizable Value = $841,375

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