Question

Pharoah Company reports the following financial information before adjustments.

		Dr.			Cr.
Accounts Receivable		$130,100
Allowance for Doubtful Accounts					$3,310
Sales Revenue (all on credit)					808,500
Sales Returns and Allowances		52,830

Prepare the journal entry to record bad debt expense assuming Pharoah Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,490 debit balance. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

	Journal entries
(a)
Date	General Journal	DEBIT ($)	CREDIT ($)
	Bad Debt Expense	1,894.00
	Allowance for Bad Debts		1,894.00
(b)
Date	General Journal	DEBIT ($)	CREDIT ($)
	Bad Debt Expense	6,694.00
	Allowance for Bad Debts		6,694.00
	Explanation
(a)	3% of accounts receivable uncollectible = $130,100*4% = $5,204
	Credit balance of allowance for doubtful accounts = $3,310
	Hence, Bad Debt Expense = 5,204 - 3,310 = $1,894
(b)	3% of accounts receivable uncollectible = $130,100*4% = $5,204
	Debit balance of allowance for doubtful accounts = $1,490
	Hence, Bad Debt Expense = 5,204 + 1,490 = $6,694