Question

Bay Company began using the allowance method in 2014. On January 1, 2014, Bay had a $3,200 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2014, Bay provided $27,000 of service on account. The company collected $22,000 cash from account receivable. Uncollectible accounts are estimated to be 2% of sales on account.

The amount of uncollectible accounts expense to recognize on the 2014 income statement is:

Multiple Choice

$100.

$64.

$540.

$270.

Answer 1

Calculation of estimated uncollected accounts:
Services provided on the account during the year 2014	$27,000
Estimated uncollected accounts=2% of $27000	$ 540
Journal entry for bad debts expense:
Bad debts expense debit $540
Allowance for the doubtfull accounts credit $540
(Being allowance for the doubtfull debts made)
Calculation of Accounts receivables at ending of balance:
Accounts receivable account balance in the beginning	$ 3,200
Add:Services which are provided on account during the year 2014	$ 27,000
Less:Cash which was corrected from the accounts receivable	$ 22,000
Ending balance in accounts receivables	$ 8,200
Calculation for the doubtful accounts at the ending of balence in allowance:
For the Doubtfull accounts allowance at beginning balance	-
Add:Allowances made	$540
Ending balance in the allowance for the doubtfull accounts is given as:	$ 540