Question

Grey Corporation has $100,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a credit of $1,000. Experience suggests 5 percent of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is: a.$1,000 b.$2,070 c.$5,000 d.$6,000 e.$4,000

Answer 1

The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is $4,950.

Step-by-step explanation:

The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is $4,950. Bad Debt Expense is calculated by multiplying the percentage of uncollectible receivables (5%) by the total accounts receivable ($100,000), resulting in $5,000. We then subtract the balance of the Allowance for Doubtful Accounts ($1,000) to get $4,000. Finally, we adjust the amount by the amount already reserved in the Allowance for Doubtful Accounts, which is $50 ($5,000 - $1,000). So, the answer is option e. $4,000.

Answer 2

e. $4,000

Step-by-step explanation:

The calculation of adjusting entry is shown below:-

Adjusted balance required in Allowance account = Accounts receivable × Receivable percentage

= $100,000 × 5%

= $5,000 Credit

Existing Unadjusted balance in Allowance account = $1,000 credit

Bad Debt Expense = Adjusted balance required in Allowance account - Existing Unadjusted balance in Allowance account

= $5,000 - $1,000

= $4,000

So, for computing the bad debt expenses we simply deduct existing Unadjusted balance in Allowance account from adjusted balance required in Allowance account