During the current year, Sun Electronics, Incorporated, recorded credit sales of

Question

During the current year, Sun Electronics, Incorporated, recorded credit sales of $750,000. Based on prior experience, it estimates a 2 percent bad debt rate on credit sales a. On November 13 of the current year, an account receivable for $290 from a prior year was determined to be uncollectible and was written off. b. At year-end, the appropriate bad debt expense adjustment was recorded for the current year. Required: Show the effects of the above transactions on the following categories: Assets, Liabilities, and Stockholders' Equity. Use + for increases and for decreases and indicate the accounts affected and the amounts. Transaction Assets Liabilities Stockholders' Equity a. b.

Explanation / Answer

**Allowance account is subtracted from asset .

a)write off will decrease allowance account by 290 resulting in increase of asset by 290 (as receivable - (-290write off) = receivable+290]

b)bad debt expense will increase allowance by 15000 resulting in decrease of asset .

Transaction Asset = liabilities + equity a Accounts receivable -290 Allowance for doubful account(contra asset ) 290   b Allowance for doubtful account -15000 (Increase in allowance account will decrease asset) Retained earning (Bad debt expense) - 15000 [750000*.02]

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