At the end of the current year, the accounts receivable account has a debit bala

Question

At the end of the current year, the accounts receivable account has a debit balance of $925,000 and sales for the year total $10,490,000. a.The allowance account before adjustment has a credit balance of $12,500. Bad debt expense is estimated at 3/4 of 1% of sales. b.The allowance account before adjustment has a credit balance of $12,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $40,000. c.The allowance account before adjustment has a debit balance of $5,300. Bad debt expense is estimated at 1/4 of 1% of sales. d.The allowance account before adjustment has a debit balance of $5,300. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $44,000. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

Explanation / Answer

At the end of the current year, sales for the year total $10,490,000 and

(a) The allowance account before adjustment has a credit balance of $12,500. Bad debt expense is estimated at 3/4 of 1% of sales.Now, bad debt expense = 3/4 of 1% of sales = $78675, so The amount of the adjusting entry to provide for doubtful accounts is: $78675 - 12500 (i.e. credit balance in allowance account)

   = $66175

(b) The allowance account before adjustment has a credit balance of $12,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $40,000.

Now,   estimated doubtful expense = $40,000, so The amount of the adjusting entry to provide for doubtful accounts is: $40000 - 12500 (i.e. credit balance in allowance account)

   = $27500

(c) The allowance account before adjustment has a debit balance of $5,300. Bad debt expense is estimated at 1/4 of 1% of sales. Now, bad debt expense = 1/4 of 1% of sales = $26225, so The amount of the adjusting entry to provide for doubtful accounts is: $26225 + 5300 (i.e. debit balance in allowance account)

   = $31525

(d) The allowance account before adjustment has a debit balance of $5,300. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $44,000.

Now,   estimated doubtful accounts = $44000, so The amount of the adjusting entry to provide for doubtful accounts is: $44,000 + 5300 (i.e. debit balance in allowance account)

   = $49300

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