Question

1.

K Ltd reported beginning and ending balances in the Allowance for doubtful debts account of $723 000 and $904 000 respectively. It also reported that write-offs of bad debts amounted to $648 000. Assuming that no previously written-off accounts had been collected, what amount did K Ltd record as bad debt expense for the period?

A.	$467 000
B.	$648 000
C.	$829 000
D.	$904 000

2.

The trial balance of Allen Ltd at balance date showed a credit balance of $80 000 in the Allowance for doubtful debts account. Although the account of a customer standing at $16 000 had been determined to be uncollectable, this had not been written off. What was the effect of this neglect on the year-end balance sheet?

A.	There was an understatement of total liabilities.
B.	There was an overstatement of total assets and shareholders’ equity.
C.	There was an understatement of total assets and shareholders’ equity.
D.	There was no effect on total liabilities, assets or shareholders’ equity.

3.

At year end Dodgy Ltd had a balance in Accounts receivable of $40 000 and an Allowance for doubtful debts of $2000. It was decided to write off as irrecoverable the debt of Houdini Ltd totalling $3500. It was further decided that the Allowance for doubtful debts should stand at 10 per cent of Accounts receivable. What was the journal entry needed to bring the Allowance for doubtful debts to the required level after writing off the debt of Houdini Ltd?

A.	Dr Bad debts expense                           $4000   Cr Allowance for doubtful debts                           $4000
B.	Dr Bad debts expense                           $5150   Cr Allowance for doubtful debts                           $5150
C.	Dr Bad debts expense                           $5500   Cr Allowance for doubtful debts                           $5500
D.	Dr Allowance for doubtful debts          $3500   Cr Accounts receivable                                        $3500

Please explain the reason

Answer 1

1.

Allowance for doubtful accounts, beginning = $723,000

Allowance for doubtful accounts, ending = $904,000

Accounts receivable written off = $648,000

Allowance for doubtful accounts, unadjusted = Allowance for doubtful accounts, beginning - Allowance for doubtful accounts, ending

= 723,000-648,000

= $75,000

Bad debts expense = Allowance for doubtful accounts, ending - Allowance for doubtful accounts, unadjusted

= 904,000-75,000

= $829,000

Correct option is C.

2.

Accounts receivable of $16,000 had been determined to be uncollectible but it had not been written off. If journal entry is made to write off accounts receivable of $16,000, allowance for doubtful accounts will be debited and accounts receivable will be credited by $16,000. Thus, if no such entry is made, there would be no effect on  total liabilities, assets or shareholders’ equity.

Correct option is D.

3.

Accounts receivable = $40,000

Allowance for doubtful accounts = $2,000

Accounts receivable written off = $3,500

Percentage uncollectible = 10%

Accounts receivable, ending (after writing off accounts receivable of $3,500) = Accounts receivable- Accounts receivable written off

= 40,000-3,500

= $36,500

Allowance for doubtful accounts , unadjusted = Allowance for doubtful accounts - Accounts receivable written off

= 2,000-3,500

= 1,500 (debit)

Bad debt expense = (Accounts receivable ending x Percentage uncollectible) + Allowance for doubtful accounts , unadjusted

= (36,500 x 10%)+ 1,500

= 3,650+1,500

= $5,150

The following journal entry needed:

B.	Dr Bad debts expense                           $5150   Cr Allowance for doubtful debts                           $5150

Correct option is B.