Question 1 Sheffield Corp. uses the percentage-of-receivables basis to record ba

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Question 1 Sheffield Corp. uses the percentage-of-receivables basis to record bad debt expense and concludes that 3% of accounts receivable will become uncollectible. Accounts receivable are $430,800 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,864. (a) Prepare the adjusting journal entry to record bad debt expense for the year. (b) If the allowance for doubtful accounts had a debit balance of $887 instead of a credit balance of $2,864, prepare the adjusting journal entry for bad debt expense (Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit

Explanation / Answer

Solution: Sr. no. Particulars Debit Credit (a) Bad debts expense $10,060 Allowance for doubtful accounts $10,060 (b) Bad debts expense $13,811 Allowance for doubtful accounts $13,811 Working Notes: Sr. no. Particulars Debit Credit (a) Bad debts expense $10,060 [($430,800 x 3%) - $2,864 =   $10,060    ] $10,060 Allowance for doubtful accounts Notes: Since, already Allowance for doubtful accounts of $2,864 , $10,060 required to be made. (b) Bad debts expense $13,811 [($430,800 x 3%) + $887 =   $13,811    ] Allowance for doubtful accounts $13,811 Notes: Allowance for doubtful accounts should be in credit balance, $887 shows additional allowance required to be made for doubtful accounts Please feel free to ask if anything about above solution in comment section of the question.

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