Question

23. The following information was abstracted from the records of the Martez Corporation:

Accounts receivable, December 31, 2017	$  700,000
Allowance for bad debt before adjustment, December 31, 2017	16,000 (cr.)
Sales (2017)	2,080,000
Sales discounts (2017)	28,000
Sales returns and allowances (2017)	42,000

Prepare the adjusting entry for Bad Debt expenseunder each of the following assumptions:

1.	5 percent of outstanding accounts receivable are uncollectible.
2.	4% of Net Sales
3.	An aging schedule of the accounts shows that $23,500 of the accounts are uncollectible.

Answer 1

Solution:

Adjusting entry for Bad Debt expense

Part 1 --- 5 percent of outstanding accounts receivable are uncollectible

Accounts receivable, December 31, 2017 = $700,000

Uncollected Amount = 5% of $700,000 = $35,000

We already have Allowance for bad debt before adjustment, December 31, 2017 = $16,000 Cr.

WE need to make it $35,000 at the year end

So the adjusting entry will be

Date	General Journal	Debit	Credit
Dec.31, 2017	Bad Debt Expense (35,000 - 16,000)	$19,000
	Allowance for bad debt Account		$19,000

The above entry would make the Allowance for Bad Debt Account $35,000 Credit

Part 2 --- 4% of Net Sales

Net Sales = Total Sales 2,080,000 – Sales Discount 28,000 – Sales return and allowances 42,000 = $2,010,000

Uncollectible Amount = 4% of Net Sales 2,010,000 = $80,400

We need to make Allowance for Bad Debt Account $80,400. To do that we record following entry

Date	General Journal	Debit	Credit
Dec.31, 2017	Bad Debt Expense (80,400 - 16,000)	$64,400
	Allowance for bad debt Account		$64,400

Part 3 -- An aging schedule of the accounts shows that $23,500 of the accounts are uncollectible.

Aging Schedule Accounts shows $23,500 are uncollectible. So we need to make the allowance for bad debt account $23,500. To do that we record following adjustment entry

Date	General Journal	Debit	Credit
Dec.31, 2017	Bad Debt Expense (23,500 - 16,000)	$7,500
	Allowance for bad debt Account		$7,500

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