Question

At the end of the current year, the accounts receivable account has a debit balance of $1,095,000 and sales for the year total $12,420,000. The allowance account before adjustment has a debit balance of $14,800. Bad debt expense is estimated at 3/4 of 1% of sales. The allowance account before adjustment has a debit balance of $14,800. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $47,400. The allowance account before adjustment has a credit balance of $5,300. Bad debt expense is estimated at 1/2 of 1% of sales. The allowance account before adjustment has a credit balance of $5,300. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $44,000. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

Answer 1

Answer and Explanation:

The computation is shown below:

a) Bad debt expense is

= $12,420,000 × 3 ÷ 4 of 1%

= $93,150

b) Bad debt expense is

= Estimated doubtful accounts + debit balance of allowance account

= $47,400 + $14,800

= $62,200

c) Bad debt expense is

= $12,420,000 × 1 ÷ 2 of 1%

= $62,100

d) Bad debt expense is

= Estimated doubtful accounts - credit balance of allowance account

= $44,000 - $5,300

= $38,700

We simply applied the above formulas