Question

During 2019, Bold Fashion, Inc., recorded credit sales of $790,000. Based on prior experience, the company estimates a 3 percent bad debt rate on credit sales. Required: Prepare journal entries for each transaction: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

a. On May 12, 2019, an account receivable of $2,500 from the prior period was determined to be uncollectible and was written off.

b. Record the bad debt expense for 2019 using the Percentage of Credit Sales method.

Answer 1

Solution:-

a. On May 12, 2019, an account receivable of $2,500 from the prior period was determined to be uncollectible and was written off:-

Date	Account title and explanation	Debit	Credit
May 12, 2019	Allowance for bad debt	2,500
	To Accounts receivable		2,500
	(Being, Receivable written off entry passed)

Explanation:-

When an Accounts receivable becomes uncollectible, it is directly written off from the books of accounts value.

b. Record the bad debt expense for 2019 using the Percentage of Credit Sales method:-

Date	Account title and explanation	Debit	Credit
December 31, 2019	Bad Debt Expenses	26,200
	To Allowance for Bad Debt		26,200

Explanation:-

Credit Sales = 790,000

Bad Debt = 3%

Bad Debt Estimate = 23,700

Allowance for Doubtful Debt a/c has a debit balance of $2,500 before the adjustment entry, therefore Bad Debt Expense would be

Bad Debt Expenses = Estimated Bad Debt - Unadjusted Allowance

= 23,700 - (2,500)

= 26,200

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