Question

Cheyenne Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $155,400 Allowance for Doubtful Accounts $3,890 Sales Revenue (all on credit) 800,700 Sales Returns and Allowances 50,330 Prepare the journal entry to record bad debt expense assuming Cheyenne Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,470 debit balance.

Answer 1

To record the bad debt expense, Cheyenne Company needs to calculate 4% of accounts receivable which is $6,216. If there is a debit balance of $1,470 in the Allowance for Doubtful Accounts, the adjusted bad debt expense will be $7,686.

Step-by-step explanation:

To record bad debt expense for Cheyenne Company, we must consider two scenarios based on their financial information. In the first scenario (a), the company estimates bad debts at 4% of accounts receivable, and in the second scenario (b), it also estimates bad debts at 4% but has an existing debit balance in the Allowance for Doubtful Accounts.

Scenario (a)

Bad Debt Expense (4% of $155,400) = $155,400 * 4% = $6,216

The journal entry to record the bad debt expense would be:

Debit Bad Debt Expense for $6,216

Credit Allowance for Doubtful Accounts for $6,216

Scenario (b)

If the Allowance for Doubtful Accounts has a debit balance of $1,470, this amount needs to be considered. The adjusted bad debt expenses would be:

Adjusted Bad Debt Expense = $6,216 + $1,470 = $7,686

The journal entry would be:

Debit Bad Debt Expense for $7,686

Credit Allowance for Doubtful Accounts for $7,686

Answer 2

solution in picture attached

Step-by-step explanation: