Portillo Company’s ledger at the end of the current year shows Accounts Receivable of $150,000. Instructions...

Portillo Company’s ledger at the end of the current year shows Accounts Receivable of $150,000.

Instructions

a. If Allowance for Doubtful Accounts has a credit balance of $3,000 in the trial balance and bad debts are expected to be 10% of accounts receivable, journalize the adjusting entry for the end of the period.

b. If Allowance for Doubtful Accounts has a debit balance of $3,000 in the trial balance and bad debts are expected to be 10% of accounts receivable, journalize the adjusting entry for the end of the period.

Solutions

Expert Solution

All working forms part of the answer
Basic Concept to remember when using Allowance method:

The Allowance account MUST have a CREDIT (adjusted) balance equal to the Estimated amount uncollectible.

Requirement ‘a’

Requirement 'a'
A	Balance of Accounts receivables	$ 150,000	Debit
B	% estimated to be uncollectible	10%
C = A x B	Adjusted balance of Allowance account required	$ 15,000	Credit
D	Unadjusted balance of Allowance account in Trial balance	$ 3,000	Credit
E	Bad Debt Expense to be credited to Allowance account	$ 12,000

Accounts title	Debit	Credit
Bad Debt Expense	$ 12,000
Allowance for Doubtful Accounts		$ 12,000
(Bad Debt Expense recorded)

Requirement ‘b’

Requirement 'b'
A	Balance of Accounts receivables	$ 150,000	Debit
B	% estimated to be uncollectible	10%
C = A x B	Adjusted balance of Allowance account required	$ 15,000	Credit
D	Unadjusted balance of Allowance account in Trial balance	$ 3,000	Debit
E	Bad Debt Expense to be credited to Allowance account	$ 18,000

Accounts title	Debit	Credit
Bad Debt Expense	$ 18,000
Allowance for Doubtful Accounts		$ 18,000
(Bad Debt Expense recorded)

ekkarill92 answered 1 year ago

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