Question

In 2014, MusicLand has credit sales of $400,000. MusicLand also has $50,000 in accounts receivable on December 31, 2014. MusicLand has a $200 credit balance in allowance for uncollectible accounts before adjusting entries.

Assume that MusicLand uses B/S approach to estimate bad debt expense and allowance for uncollectible accounts. MusicLand estimates that 5% of accounts receivable are uncollectible. Find bad debt expense for 2014 and allowance for uncollectible accounts at the end of 2014.

Answer 1

	Credit Sales =	$               4,00,000
	Account receivable	$                  50,000
	Answer = 1)
	CALCULATION OF BAD DEBT EXPENSES OF THE YEAR 2014
	Estimation of Bad Debts Expenses = 5% of Account Receivables =	$                     2,500
		(50,000 X 5%)
	Bad debt expenses for the year 2014 =   $ 2,500
	Answer = 2)
	CALCULATION OF ALLOWANCE FOR UNCOLLECTABLE ACCOUNTS AT THE END OF THE YEAR 2014
	Allowance for Uncollectable Accounts (Opening Bal.)	$                        200	Credit
	Add :Proivssion for allowance of the current year	$                     2,500	Credit
	Closing balannce in Allowance for Uncollectable Accounts	$                     2,700	Credit
	Answer = $ 2,700