In 1997, the Erin Company had credit sales of $825,000 and granted sales discoun

ID: 2428339 • Letter: I

Question

In 1997, the Erin Company had credit sales of $825,000 and granted sales discounts of $16,500. On December 31, 1997 the Accounts Receivable balance was $248,000 and the unadjusted Allowance for Doubtful Accounts balance was $400 (credit). The management reviewed the accounts receivable and determined that $12,400 would become uncollectible. The adjusting entry to record bad debts would include a debit to Bad Debt Expense for:
a. $12,400
b. $12,800
c. $12,000
d. $235,600
e. There would be no entry to bad debt expense

Explanation / Answer

Ans is b. $12,800 Record the entry : allowance account currently has a credit balance of $400. The journal entry to record the bad debts would be as follows: Debit Credit ------- ------- Bad debt expense 12,400 Allowance for doubtful accounts 12,400 After the above entry, the allowance account would have a balance of $12,800 (i.e., $12400 + $400). So Allowance for doubtful accounts balance will be $12,800

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In 1997, the Erin Company had credit sales of $825,000 and granted sales discoun

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