APPLY THE CONCEPTS: Prepare the adjusting entry by using the income statement ap

Question

APPLY THE CONCEPTS: Prepare the adjusting entry by using the income statement approach Assume that you are a staff accountant at Mitchell Co. One of your responsibilities is the adjusting entry to record the bad debt expense at the end of the accounting period. Mitchell uses the income statement approach to make the estimate. You collect net credit sales figures and the data regarding customer balances that have been written off for prior periods. You determine that uncollectible accounts average 1.5% of net credit sales. The accounts receivable clerk has informed you that net credit sales for the year were $3,000,000 and the December 31, balances in Accounts Recelvable and Allowance for Doubtful Accounts are $240,000 and $345, respectively. Use the T accounts to prepare the adjusting entry required at the end of the year to record the expense for bad debt. If required, round your answers to the nearest dollar. If amount is zero, leave the box blank. Select Bal Select Bal Bal Use the selection dropdowns to indicate the effect of the transaction recorded in each T account has on the accounting equation and on which financial statement the account is reported. Assets = Liability + Equity Appears on: Assets = Liabilities + Equity Appears on: Balance sheet No effect No effect Income statement What is the net realizable value of Accounts Receivable after the adjusting entry has been prepared? $

Explanation / Answer

Allowance for Doubtful Accounts(balance sheet accounts)

345 Adjusted Entry

Bad Debts Accounts(income method)

Credit

Bad Debts Expenses 345

Allowance For Doubtful Accounts 345

Debit Credit Decresae a contra asset Increase a contra asset 0 Preliminary exp.

345 Adjusted Entry

345 correct balance

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