23. The following information was abstracted from the records of the Martez Corp
ID: 2559271 • Letter: 2
Question
23. The following information was abstracted from the records of the Martez Corporation:
Accounts receivable, December 31, 2017
$ 700,000
Allowance for bad debt before adjustment, December 31, 2017
16,000 (cr.)
Sales (2017)
2,080,000
Sales discounts (2017)
28,000
Sales returns and allowances (2017)
42,000
Prepare the adjusting entry for Bad Debt expenseunder each of the following assumptions:
1.
5 percent of outstanding accounts receivable are uncollectible.
2.
4% of Net Sales
3.
An aging schedule of the accounts shows that $23,500 of the accounts are uncollectible.
Accounts receivable, December 31, 2017
$ 700,000
Allowance for bad debt before adjustment, December 31, 2017
16,000 (cr.)
Sales (2017)
2,080,000
Sales discounts (2017)
28,000
Sales returns and allowances (2017)
42,000
Explanation / Answer
Solution:
Adjusting entry for Bad Debt expense
Part 1 --- 5 percent of outstanding accounts receivable are uncollectible
Accounts receivable, December 31, 2017 = $700,000
Uncollected Amount = 5% of $700,000 = $35,000
We already have Allowance for bad debt before adjustment, December 31, 2017 = $16,000 Cr.
WE need to make it $35,000 at the year end
So the adjusting entry will be
Date
General Journal
Debit
Credit
Dec.31, 2017
Bad Debt Expense (35,000 - 16,000)
$19,000
Allowance for bad debt Account
$19,000
The above entry would make the Allowance for Bad Debt Account $35,000 Credit
Part 2 --- 4% of Net Sales
Net Sales = Total Sales 2,080,000 – Sales Discount 28,000 – Sales return and allowances 42,000 = $2,010,000
Uncollectible Amount = 4% of Net Sales 2,010,000 = $80,400
We need to make Allowance for Bad Debt Account $80,400. To do that we record following entry
Date
General Journal
Debit
Credit
Dec.31, 2017
Bad Debt Expense (80,400 - 16,000)
$64,400
Allowance for bad debt Account
$64,400
Part 3 -- An aging schedule of the accounts shows that $23,500 of the accounts are uncollectible.
Aging Schedule Accounts shows $23,500 are uncollectible. So we need to make the allowance for bad debt account $23,500. To do that we record following adjustment entry
Date
General Journal
Debit
Credit
Dec.31, 2017
Bad Debt Expense (23,500 - 16,000)
$7,500
Allowance for bad debt Account
$7,500
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Date
General Journal
Debit
Credit
Dec.31, 2017
Bad Debt Expense (35,000 - 16,000)
$19,000
Allowance for bad debt Account
$19,000
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