Final answer:
Compute the adjusting entry for bad debt expense, multiply net sales by 0.5% and adjust for the existing credit balance in the Allowance for Doubtful Accounts. The resulting adjusting entry is $12,000. For the bank's T-account, the net worth is calculated by subtracting deposits from total assets, resulting in a net worth of $220.
Step-by-step explanation:
Adjusting Entry for Bad Debt Expense
The student asked how to determine the adjusting entry for bad debt expense. For the current year, with an Accounts Receivable balance of $700,000, an existing credit balance in Allowance for Doubtful Accounts of $5,500, and total sales of $3,500,000, the bad debt expense is estimated at 0.5% (1/2 of 1%) of net sales.
To calculate the bad debt expense, multiply the net sales by the bad debt rate: $3,500,000 × 0.005 (0.5%) = $17,500. Since there is an existing credit balance in the Allowance for Doubtful Accounts of $5,500, we must adjust for this existing balance to find the new entry required.
The adjusted bad debt expense will be $17,500 (new calculated expense) - $5,500 (existing credit balance) = $12,000. Therefore, the adjusting entry for bad debt expense will be $12,000.
Bank's T-account Balance Sheet and Net Worth
The bank's assets include reserves of $50, government bonds worth $70, and loans made amounting to $500, totaling $620 in assets. The liability is the deposits totaling $400. To calculate the bank's net worth, subtract the liabilities from the assets: $620 (assets) - $400 (deposits) = $220. The net worth of the bank is $220.