Question

Santana Rey, owner of Business Solutions, realizes that she needs to begin accounting for bad debts expense. Assume that Business Solutions has total revenues of $44,000 during the first three months of 2019, and that the Accounts Receivable balance on March 31, 2019, is $21,967.Prepare the adjusting entry needed for Business Solutions to recognize bad debts expense on March 31, 2019, under each of the following independent assumptions:(assume a zero unadjusted balance in the Allowance for Doubtful Accounts at March 31)(Round amounts to the nearest dollar)a) Bad debts are estimated to be 1% of total revenues.b) Bad debts are estimated to be 2% of accounts receivable.

Answer 1

The Journal entries are as follows:

(a)

Bad Debt Expense A/c Dr. $440

To Allowance for Doubtful Accounts $440

(To record the bad debts)

Workings:

Bad Debt Expense = 1% of Total revenue

= 0.01 × $44,000

= $440

(b)

Bad Debt Expense A/c Dr. $439.34

To Allowance for Doubtful Accounts $439.34

(To record the bad debts)

Workings:

Bad Debt Expense = 2% of accounts receivable

= 0.02 × $21,967

= $439.34