Question

Modern Office has $3,000,000 of credit sales for the year and $50,000 of outstanding accounts receivable and $1,000 balance of Allowance for Doubtful Account(AFDA) on December 31. Modern Office estimates that either 0.1% of credit sales or 8% of outstanding receivables will not be collectible and wants to set up an Allowance for Doubtful Account(AFDA).

How much is the bad debt expense for the year under the Percentage of Sales (Income Statement) Approach?

How much is the bad debt expense for the year under the Percentage of Account Receivable (Balance Sheet) Approach?

Journalize the following:

1. adjustments needed for the AFDA using the balance sheet approach.
2. write off of an account receivable for $500

TO RECEIVE MARKS YOU MUST USE THE FOLLOWING FORMAT FOR JOURNALS

Dr. Cash 100

Cr. revenue 100

Answer 1

Modern office
Answer 1	Amount $	Note
Credit Sales	3,000,000.00	A
Bad Debt %	0.10%	B
Uncollectible amount	3,000.00	C=A*B
Less: Credit balance in allowance for doubtful account	1,000.00	D
Bad Debt Expense	2,000.00	E=C-D
Answer 2	Amount $	Note
Accounts Receivable	50,000.00	A
Bad Debt %	8.00%	B
Uncollectible amount	4,000.00	C=A*B
Less: Credit balance in allowance for doubtful account	1,000.00	D
Bad Debt Expense	3,000.00	F=C+D
Answer 3
Journal entry	Debit $	Credit $
Bad Debt expense	3,000.00
Allowance for doubtful account		3,000.00
Answer 4
Write off of an account receivable for $500	Debit $	Credit $
Allowance for doubtful account	500.00
Accounts receivable		500.00