In: Accounting
At January 1, 2020, the credit balance of Whispering Winds Corp.’s Allowance for Doubtful Accounts was $401,000. 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 90% were on account. Based on the information available at the time, the 2020 bad debt expense was estimated to be 0.75% of net credit sales. During 2020, uncollectible receivables amounting to $508,500 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 $530,500.
Prepare a schedule calculating the balance in Whispering Winds
Corp.’s Allowance for Doubtful Accounts at December 31,
2020.
Balance, January 1, 2020 |
||
---|---|---|
Bad debt expense accrual |
||
enter a subtotal of the two previous amounts | ||
Uncollectible receivables written off |
||
Balance, December 31, 2020 before adjustment |
enter a total amount for the first part | |
Allowance adjustment |
||
Balance, December 31, 2020 |
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 |
Answer :-
Step 1 :- First we have to find out the bad debts axpenses accrual :-
Total net sales :- | $80,000,000 |
Net credit sales revenue (80,000,000*90%) :- | $72,000,000 |
Then estimated bad debts expenses of 0.75% | |
Multiply net credit to bad debts expenses percent ($72,000,000*0.75%) | $540,000 |
Bad debts accrual expenses = $540,000
Step 2 :- Schedule calculating the balance in Whispering Winds Corp.’s Allowance for Doubtful Accounts at December 31, 2020 :-
Balance, January 1, 2020 | $401,000 |
ADD :Bad debts accrual expenses | $540,000 |
Sub total | $941,000 |
LESS : Uncollectible receivables written off | $508,500 |
Balance,December 31,2020 before adjustment | $432,500 |
Allowance adjustment ( $530,500-$432,500)* | $98,000 |
Balance, December 31, 2020 | $530,500 |
Working note :- Allowance adjustment = Balance, December 31, 2020 - Balance,December 31,2020 before adjustment*
Adjusting entry :-
Particulars | Debit | Credit |
Bad debts expenses | $98,000 | |
Allowance for doubtful debts | $98,000 | |
( To record the bad debts expenses by allowance adjustment ) |