Question

Splitter Corporation had total sales in the current year of $750,000 and credit sales of $650,000. The Accounts Receivable balance was $450,000 on the balance sheet date and the Allowance for Doubtful Accounts has a credit balance of $10,000 before adjusting entries. Bad debt expense is estimated as 2% of credit sales. The adjusting entry to record estimated bad debt expense would include a

Answer 1

To record the estimated bad debt expense, multiply credit sales by the bad debt rate to determine the expense, which is $13,000 for Splitter Corporation. Adjust the Allowance for Doubtful Accounts with an adjusting journal entry, debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts by the same amount.

Step-by-step explanation:

Recording Bad Debt Expense

The student's question pertains to recording the estimated bad debt expense in the accounting records of Splitter Corporation. To determine the bad debt expense, you multiply the credit sales, which are $650,000, by the bad debt rate, which is 2%. This calculation results in a bad debt expense of $13,000 ($650,000 x 0.02).

Since the Allowance for Doubtful Accounts already has a credit balance of $10,000, you would record the additional $3,000 ($13,000 - $10,000) required to bring the allowance to the correct level. The adjusting journal entry would debit Bad Debt Expense for $13,000 and credit Allowance for Doubtful Accounts for $13,000 to reflect the estimated uncollectible accounts in the financial statements.

The adjusting journal entry:
1. Debit: Bad Debt Expense $13,000
2. Credit: Allowance for Doubtful Accounts $13,000

Answer 2

$13,000

Step-by-step explanation:

Given the above information, the adjusting entry to record estimated bad debt expense includes

= Credit sales × Estimated bad debt expense of credit sales

Given that

Credit sales = $650,000

Estimated bad debt of credit sales = 2%

= $650,000 × 2%

= $13,000

Therefore, the adjusting entry to record estimated bad debt expense includes $13,000