Question

Coronado Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $140,800 Allowance for Doubtful Accounts $2,480 Sales Revenue (all on credit) 816,800 Sales Returns and Allowances 53,910 Prepare the journal entry to record bad debt expense assuming Coronado Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,540 debit balance.

Answer 1

a) Dr Bad Debt Expense $3,152

Cr Allowance for Doubtful Accounts $3,152

b) Dr Bad Debt Expense $7172

Cr Allowance for Doubtful Accounts $7172

Step-by-step explanation:

A. Preparation of the journal entry to record bad debt expense assuming Coronado Company estimates bad debts at 4% of accounts receivable

Dr Bad Debt Expense $3,152

Cr Allowance for Doubtful Accounts $3,152

B. Preparation of the journal entry to record bad debt expense assuming Coronado Company estimates bad debts at 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,540 debit balance.

Dr Bad Debt Expense $7172

Cr Allowance for Doubtful Accounts $7172

Working

(a) Allowance for Doubtful Accounts = 4% × $140,800 = $5,632 (desired credit balance in allowance account)

$5,632 - $2,480 = $3,152

(b) Allowance for Doubtful Accounts = [(4% × $140,800) + $1,540] = $7172