The following information was gathered to help prepare the adjusting entry for P
ID: 2522933 • Letter: T
Question
The following information was gathered to help prepare the adjusting entry for Phoebe’s Flower Shop for 2018. This financial information is before any of the bad debt expense adjustments. Debit Credit Accounts Receivable, 12/31/18 135,000 Allowance for Uncollectible Accounts, 12/31/18 1,750 Sales (all on credit), 12/31/18 428,000 Sales Returns and Allowances, 12/31/18 10,500 Required (each situation is independent of the others):
a. Prepare the appropriate journal entry to record the estimated bad debt expense for Phoebe’s Flower Shop assuming bad debts are assumed to be 2.25% of net sales (income statement approach).
b. Prepare the appropriate journal entry to record the estimated bad debt expense for Phoebe’s Flower Shop assuming bad debts are assumed to be 3.5% of gross accounts receivable (balance sheet approach).
c. Prepare the appropriate journal entry to record the estimated bad debt expense for Phoebe’s Flower Shop assuming the same facts in part b except that Phoebe’s Allowance for Uncollectible Accounts account has a debit balance of $1,350.
d. Calculate the net realizable value in the Accounts Receivable assuming the same facts as in part c. Date Account Description Debit Credit
Explanation / Answer
a) Date Account titles & Explanations Debit Credit 31-Dec Bad debts expense 9393.75 Allowance for bad debts 9393.75 (428000-10500)*2.25% b) 31-Dec Bad debts expense 2975 Allowance for bad debts 2,975 (135000*3.5%-1,750) c) 31-Dec Bad debts expense 6075 Allowance for bad debts 6,075 (135000*3.5%+1350) d) Net realizable value account receivable 135000 less :allowance for bad debts 4725 Net realizable value 130275
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