Question

In: Accounting

At January 1, 2020, the credit balance of Whispering Winds Corp.’s Allowance for Doubtful Accounts was...

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

Solutions

Expert Solution

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 )

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