Question

Vaughn Company provides for bad debt expense at the rate of 3% of accounts receivable. The following data are available for 2018: Allowance for doubtful accounts, 1/1/18 (Cr.) $ 11900 Accounts written off as uncollectible during 2018 9900 Ending accounts receivable 1197000 The Allowance for Doubtful Accounts balance at December 31, 2018, should be

Answer 1

The Allowance for Doubtful Accounts balance at December 31, 2018, should be $35,613.

Step-by-step explanation:

The question did not tell us whether the ending balance of accounts receivable had already been adjusted for with the write-off that happened during the year. If we assume, it was not adjusted for, the required journals would be:

Debit Allowance for doubtful accounts $9,900

Credit Accounts receivable $9,900

(To write-off accounts receivable)

The impact on accounts receivable is $1,197,000 - $9,900 = $1,187,100

The impact on Allowance for doubtful accounts is $11,900 - $9,900 = $2,000

3% of accounts receivable ($1,187,100) = $35,613

The required bad debt expense is $35,613 - $2,000 = $33,613

Debit Bad debt expense $33,613

Credit Allowance for doubtful accounts $33,613

(To record bad debt expense for the year)