At the end of 2012, the unadjusted trial balance of Donovan, Inc included $6,000
ID: 2480091 • Letter: A
Question
At the end of 2012, the unadjusted trial balance of Donovan, Inc included $6,000,000 in accounts receivable, a credit balance of $50,000 in the allowance for doubtful accounts, and sales revenue (all on credit) of $200,000,000. Based on knowledge that the current economy is in distress, Donovan increased its bad debt rate estimate to 0.4 percent on credit sales. Use the information to answer the following. 1. What amount of bad debt expense should be recorded for 2012? 2. What amount will be reported on the 2012 balance sheet for the net realizable amount of accounts receivable, after reduced by the balance in the allowance for uncollectible accounts?
Explanation / Answer
Credit Sales = $ 200,000,000 and Bad Debts estimation = 0.4%
The Allowance for Doubtful accounts = $ 50,000
Bad Debts Expense = 0.4% * $ 200,000,000 = $ 800,000
The adjusting entry at the end of 2012 =
Debit Bad debt expenses $ 800,000
Credit Allowance for Doubtful Debts $ 800,000
Therefore,the Answers as follows:
1. amount of bad debt expense should be recorded for 2012?: The Answer = $ 800,000
2. What amount will be reported on the 2012 balance sheet for the net realizable amount of accounts receivable, after reduced by the balance in the allowance for uncollectible accounts?
New Balance of Allowance Account = $ 50,000 + $ 800,000 = $ 850,000
The amount wil be reported on the 2012 Balance Sheet for Net realizable amount of accounts receivable =
$ 200,000,000 - $ 850,000 = $ 199,150,000
The Answer = $ 188,150,000
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