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George Products had sales of $13,000,000 for 2014. On December 31, 2014, the balance in Accounts...

George Products had sales of $13,000,000 for 2014. On December 31, 2014, the balance in Accounts Receivable was $4,500,000. An aging analysis of the accounts receivable indicated that $125,000 in accounts are expected to be uncollectible.

Prepare the adjusting entry to record estimated bad debts expense using the percentage of receivables basis under each of the following independent assumptions:

Allowance for Doubtful Accounts has a credit balance of $2,300 before adjustment.

Allowance for Doubtful Accounts has a debit balance of $600 before adjustment

Using the percentage of sales method 1% of sales is expected to be uncollectible. Prepare the adjusting entry under each of the following independent assumptions using the percent of sales method:

Allowance for Doubtful Accounts has a credit balance of $2,300 before adjustment.

Allowance for Doubtful Accounts has a debit balance of $600 before adjustment

Expert Solution

Situation 1. Under percentage of receivable basis

Case q. Entry.

Bad debt expense account... Dr 122700

To allowance for bad and doubtful account 122700

( provision provided under this method amounting to 125000 of which the allowance for bad and doubtful account has a credit balance of 2300. Therefore additional provision required is 125000-2300=122700)

2. Bad debt expense account... Dr 125600

To allowance for bad and doubtful debts account 125600

( in this situation provision account has 600 debit balance. Therefore current year provision will be 125000+600=125600)

Situation 2. Percentage of sales method

1.bad debt expense account... Dr 127700

To allowance for bad and doubtful debts account 127700

(Under percentage of sales method provision is created at a fixed percentage of sales. Here the provision will be 1% of 13000000= 130000. The provision account has 2300 credit balance. Therefore current year provision will be 13000p- 2300= 127700)

2. Bad debt expense account... Dr 130600

To allowance for bad and doubtful debts account 130600

( under this case provision account has 600 debit balance. Therefore current year provision will be 13000p+600= 130600)

ekkarill92 answered 3 months ago

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