Question

STU Corporation had at the end of fiscal 2016 a $10,000 debit balance in its accounts receivable account. The allowance for doubtful accounts amounted to $500 at that time.

A) An aging of accounts receivable at year end indicates the need for an allowance balance of $700. What adjusting would be made to accommodate this estimate at year end?

B) What would the entry for uncollectible accounts expense be if STU used the percentage of credit sales method when total credit sales in 2016 was $12,000 and the usual uncollectible loss amounted to one percent of credit sales?

Answer 1

• All working forms part of the answer
• Requirement (A)

Unadjusted balance in Allowance for Doubtful account	$                      500.00
Balance required in Allowance for Doubtful account based on ageing of accounts receivables	$                      700.00
Amount by which allowance account to be credited by [$700 - $500]	$                      200.00
Accounts titles	Debit	Credit
Bad Debt expense	$                      200.00
Allowance for doubtful accounts		$                     200.00
(uncollectible expense recorded)

• Requirement (B)

Total Credit Sale	$                    12,000.00
Expected uncollectible 1%	$                          120.00   [12000 x 1%]
Accounts titles	Debit	Credit
Bad Debt expense	$                          120.00
Allowance for doubtful accounts		$                            120.00
(uncollectible expense recorded)