Question

1. Jefferson uses the percent of sales method of estimating uncollectible expenses. Based on past history, 2% of credit sales are expected to be uncollectible. Sales for the current year are $5,550,000. Which of the following is correct regarding the entry to record estimated uncollectible receivables?

a. Allowance for Doubtful Accounts will be credited.

b. Cash will be debited.

c. Accounts Receivable will be debited.

d. Bad Debt Expense will be credited.

2. The difference between the balance in Accounts Receivable and the balance in the Allowance for Doubtful Accounts is called the net realizable value of the receivables. True False

3. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $661,395 and Allowance for Doubtful Accounts has a balance of $24,008. What is the net realizable value of the accounts receivable?

Select the correct answer.

$637,387

$661,395

$685,403

$24,008

4.Allowance for Doubtful Accounts has a credit balance of $880 at the end of the year (before adjustment), and an analysis of customers' accounts indicates uncollectible receivables of $12,080. Which of the following entries records the proper adjustment for Bad Debt Expense?

Select the correct answer.

debit Allowance for Doubtful Accounts, $12,960; credit Bad Debt Expense, $12,960

debit Allowance for Doubtful Accounts, $11,200; credit Bad Debt Expense, $11,200

debit Bad Debt Expense, $11,200; credit Allowance for Doubtful Accounts, $11,200

debit Bad Debt Expense, $12,960; credit Allowance for Doubtful Accounts, $12,960

Answer 1

1.

Correct answer is a. Allowance for doubtful accounts will be credited

In case of recording the estimated uncollectible receivables, the journal entry will involve debit to Bad debt expenses and credit to allowance for doubtful accounts.

2.

Correct answer is True.

3.

Net realizable value of accounts receivable = Accounts receivables balance – Allowance for doubtful accounts

Net realizable value of accounts receivable = $661,395 - $24,008 = $637,387

Hence, correct answer is $637,387

4.

Bad debt to be recorded during the year = Required balance for allowance for doubtful accounts – Current balance for allowance for doubtful accounts

Bad debt to be recorded during the year = $12,080 - $880 = $11,200

This shall be recorded by debiting the bad debt expense and crediting the allowance for doubtful accounts by $11,200

Hence, correct answer is debit Bad Debt Expense, $11,200; credit Allowance for Doubtful Accounts, $11,200