Allowance Method Review - The Allowance Method (GAAP) V. Direct Write-Off Method
ID: 2532810 • Letter: A
Question
Allowance Method Review - The Allowance Method (GAAP) V. Direct Write-Off Method
Nathans Corp., manufactures hot dogs, reports the following information before adjusting for 2010 Bad Debt Expense.
Dr. Cr.
Accounts Receivable……………………… $ 100,000
Allowance for Uncollectibles……..….. $ 10,000
Sales Revenue (all on credit)…………. $500,000
Sales Returns and Allowances……….. $100,000
Sales Discounts……………………………… $ 50,000
Valuation of Accounts Receivable – Allowance Method for Uncollectible Accounts
Recording Bad Debts- Bases Used for Allowance Method
- Please write the correct journal entry to record Bad Debt expense assuming Nathans Corp. estimates bad debt expense at 3% of Net Sales.
- Please indicate the ending balance in Allowance for Uncollectibles.
Note: Under the Percentage of Sales Method, a journal entry to record Bad Debt Expense and Allowance for Uncollectibles is recorded with each credit sale.
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Valuation of Accounts Receivable – Allowance Method for Uncollectible Accounts
Recording Bad Debts - Bases Used for Allowance Method
Which is the correct journal entry to record Bad Debt expense assuming Nathans Corp. estimates bad debt expense at 12% of Accounts Receivable.
Note: Percentage of Accounts Receivable at Year-end Method: (Uses the Balance Sheet )
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Allowance for Uncollectibles at year-end = % of year-end Accounts Receivables
Valuation of Accounts Receivable – Allowance Method for Uncollectible Accounts
Recording Bad Debts Aging of Receivables Method
_______________________________________________________________________________________________
HEB Inc.
Aging Schedule
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Classification by Balances in Estimated % Estimated
By Due Date Each Category Uncollectible Uncollectible Acct.
Current $10,000 .02 $ 200
31-61 days $ 7,000 .04 $ 280
61-90 days $ 5,000 .15 $ 750
Over 90 days $ 4,000 .25 $1000
$26,000 $2,230
Note: Aging of Receivables Method (Uses the Balance Sheet)
Explanation / Answer
Solution 1:
Bad debts expense is 3% of net sales:
Net Sales = $500,000 - $100,000 - $50,000 = $350,000
Ending balance of Allowance for Uncollectibles. = $10,000 + $10,500 = $20,500
Solution 2:
Bad debts expense at 12% of accounts receivables:
Estimated bad debts at the end of year = $100,000*!2% = $12,000
Balance in allowance for uncollectibles = $10,000
Bad debts expense to be recorded = $12,000 - $10,000 = $2,000
Ending balance of Allowance for Uncollectibles. = $12,000
Solution 3:
Ageing of receivables method:
Required bad debts expense = $2,230
Balance in allowance for uncollectible not given, therefore it will be considered as nil.
Adjsuting Journal Entries Particulars Debit Credit Bad debts expense Dr ($350,000*3%) $10,500.00 To Allowance for uncollectible accounts $10,500.00 (To record bad debts provision)Related Questions
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