Question

Farr Co. elects to use the percentage-of-sales basis in 2017 to record bad debt expense. It estimates that 2% of net credit sales will become uncollectible. Sales revenues are $801,000 for 2017, sales returns and allowances are $40,100, and the allowance for doubtful accounts has a credit balance of $8,900. Prepare the adjusting entry to record bad debt expense in 2017.

Answer 1

The Journal entry is as follows:

Bad Debt Expense A/c Dr. $15,218

To allowance for doubtful accounts $15,218

(To record the bad debt expense in 2017)

Working notes:

Bad Debt Expense in 2017:

= (Sales revenue - allowances) × 2%

= ($801,000 - $40,100) × 2%

= $760,900 × 0.02

= $15,218