Question

On December 31, 20X1, Carter Corporation had the following account balances related to credit sales and receivables prior to recording adjusting entries:

Trade receivables	$25,000
Allowance for doubtful accounts	$200 (credit)
Sales revenue (all credit sales)	$400,000

Required:

Present the necessary year-end adjusting entry related to uncollectible accounts for each of the following independent assumptions:

A. An aging of accounts receivable is completed. It is estimated that $1,950 of the receivables outstanding at year-end will be uncollectible.
B. It is estimated that .5% of credit sales for the year will prove to be uncollectible.
C. Assume the same information presented in (A) above except that prior to adjustment, the Allowance for doubtful accounts had a debit balance of $200 rather than a credit balance of $200.

Answer 1

Based on the information available in the question, we can answer as follows:-

Requirement A:-

Bad Debt expense = $1,950 - $200 Credit

Bad Debt expense = $1,750

	Particulars	Amount	Amount
December 31, 20X1	Bad Debt expense A/c	1,750
	To Allowance for uncollectible accounts		1,750
	(To record the bad debt expense )

Requirement B:-

Allowance for Doubtful Accounts = $400,000 * 0.5%

Allowance for Doubtful Accounts = $2,000

Bad Debt expense = $2,000 - $200 credit

Bad Debt expense = $1,800

	Particulars	Amount	Amount
December 31, 20X1	Bad Debt expense A/c	1,800
	To Allowance for uncollectible accounts		1,800
	(To record the bad debt expense )

Requirement C:-

Bad Debt Expense = $1,950 + $200 Debit balance

Bad Debt expense = $2,150

	Particulars	Amount	Amount
December 31, 20X1	Bad Debt expense A/c	2,150
	To Allowance for uncollectible accounts		2,150
	(To record the bad debt expense )

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