Question

At the end of the current year, the accounts receivable account has a debit balance of $947,000 and sales for the year total $10,740,000. The allowance account before adjustment has a credit balance of $12,800. Bad debt expense is estimated at 1/4 of 1% of sales. The allowance account before adjustment has a credit balance of $12,800. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $41,000. The allowance account before adjustment has a debit balance of $5,700. Bad debt expense is estimated at 3/4 of 1% of sales. The allowance account before adjustment has a debit balance of $5,700. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $47,300. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

Answer 1

A.$26,850

B.$28,200

C.$80,550

D.$53,000

Step-by-step explanation:

Calculation to Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions

A.) We are using net sales as a basis, therefore the balance in the allowance account is ignored.

$10,740,000 x 1% x 1/4 = 26,850

26,850- 12,800

= 14,050 adjustment

B.) We are using Accounts Receivables as the basis, therefore the balance in the allowance account needs to be considered.

41,000 - 12,800 = 28,200 adjustment

C.) Since allowance account before adjustment has a debit balance of $5,700 in which Bad debt expense is estimated at 3/4 of 1% of net sales. The adjustment will be:

10,740,000 x 1% x 3/4 =80,550

80,550 - 5,700 = 74,850 adjustment

D.) Since we have a debit balance, the adjustment would be :

47,300+ 5,700 = 53,000