Percent of Sales Method At the end of the current year, Accounts Receivable has

Question

Percent of Sales Method At the end of the current year, Accounts Receivable has a balance of $645,000; Allowance for Doubtful Accounts has a debit balance of $6,000; and sales for the year total $2,900,000. Bad debt expense is estimated at 1/4 of 1% of sales. 1. Determine the amount of the adjusting entry for uncollectible accounts 2. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable Allowance for Doubtful Accounts Bad Debt Expense 3. Determine the net realizable value of accounts receivable

Explanation / Answer

1) Adjusting entry for uncollectible account = 2900000*1%*1/4 = 7250

2) Adjusted balance:

Account receivable = 645000

Allowance for doubtful accounts = 7250-6000 = 1250 credit

Bad debt expense = 7250

3) Net realizable value = 645000-1250 = 643750

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