Question

As of December 31, Frappe Company has a balance of $11,000 in accounts receivable. Of this amount, $1,100 is past due and the remainder is not yet due. Frappe has a credit balance of $105 in the Allowance for Doubtful Accounts. Frappe Company estimates its bad debt losses using the aging of receivables method, with estimated bad debt loss rates equal to 3% of accounts not yet due and 10% of past due accounts. How will the Bad Debt Expense account be included in the required adjusting journal entry at year-end

Answer 1

Debit of $302

Step-by-step explanation:

Provision required on AR past due = 1,100 * 10% = $110

Provision required on AR not yet due = (11,000-1,100) *3% = 9900 * 3% = $297

Total Allowance for Doubtful Accounts required = Provision required on AR past due + Provision required on AR not yet due

Total Allowance for Doubtful Accounts required = $110 + $297

Total Allowance for Doubtful Accounts required = $407

Existing Allowance for Doubtful Accounts = $105

Bad Debt Expense = Total Allowance for Doubtful Accounts required - Existing Allowance for Doubtful Accounts

Bad Debt Expense = $407 - $105

Bad Debt Expense = $302

So, Bad Debt Expense account will be included in the adjusting journal entry at year-end as Debit of $302