Question

At January 1, 2020, the credit balance of Cheyenne Corp.’s Allowance for Doubtful Accounts was $406,500. During 2020, the bad debt expense entry was based on a percentage of net credit sales. Net sales for 2020 were $80 million, of which 89% were on account. Based on the information available at the time, the 2020 bad debt expense was estimated to be 0.80% of net credit sales. During 2020, uncollectible receivables amounting to $500,000 were written off against the allowance for doubtful accounts. The company has estimated that at December 31, 2020, based on a review of the aged accounts receivable, the allowance for doubtful accounts would be properly measured at $525,500.

Prepare a schedule calculating the balance in Cheyenne Corp.’s Allowance for Doubtful Accounts at December 31, 2020.

Balance, January 1, 2020		$enter a dollar amount
Bad debt expense accrual		enter a dollar amount
		enter a subtotal of the two previous amounts
Uncollectible receivables written off		enter a dollar amount
Balance, December 31, 2020 before adjustment		enter a total amount for the first part
Allowance adjustment		enter a dollar amount
Balance, December 31, 2020		$enter a total amount

Prepare any necessary journal entry at year end to adjust the allowance for doubtful accounts to the required balance. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

Bad debts expenses accrual:
Total net sales				80,000,000
Multiply: % of credit sales				89%
Net credit sales revenue				71,200,000
Multiply: Bad debts expense accrual %				0.80%
Bad debts expense accrual				569,600
Schedule computing the balance of allowance for doubtful accounts at Dec 31, 2020.
Beginning balance of Allowance on Jan 01 20					406,500
Add: Bad debts expenses accrual					569,600
Sub total					976,100
Less: Uncollectible receivable written off (Given)					500,000
Balance Dec 31 2020 before adjustment					476,100
Allowance Adjustment (525500-476100)					49,400
Balance Dec 31 , 2020					525,500
Adjusting entry:
Accounts title and explanations				Debit $	Credit $
Bad debts expenses				49,400
Allowance for Doubtful debts					49,400
(for making bad debts expenses for maintaining the required balance of Allowance)