13. Yo da Enterprises elects the allowance method for estimating and recognizing

Question

13. Yo da Enterprises elects the allowance method for estimating and recognizing bad debt in their first year of operations (January 1,2013 - December 31, 2013). At the end of their first year of operation, Yoda Enterprises shows sales of $850,000 with an outstanding accounts receivable balance of $84,000. Upon review of this $84,000 balance, management estimates that 50% maybe uncollectible in the coming year. Using the allowance method, Yoda Enterprises would record the following entry to recognize this estimated uncollectible balance: A) Bad Debts Expenses $42,000 B) C) D) Accounts Receivable $42,000 Bad Debts Expenses $42,000 Allowance for Doubtful Accounts Accounts Receivable $42,000 Allowance for Doubtful Accounts $42,000 Allowances for Doubtful Accounts $42,000 $42,000 $42,000 Bad Debts Expenses

Explanation / Answer

The allowance method requires an adjustment entry to be passed at the end of the period to recognize the bad debts expense.

Bad debts estimated = $84000*50%= $42000

Journal entry

Therefore the initial step in allowance method, being recognition of estimated bad debts, Option is Correct

Date Account Title and Explanation Debit Credit Year end Bad debt expenses $42000 Allowance for doubtful debts $42000

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