Question

Munchener Corp.’s unadjusted trial balance includes the following balances:

                                                                                                                             Dr.                                                             Cr.

                                                    Accounts receivable                       $150,000                                                                                 

                                                    Allowance for doubtful accounts                                                                                                                             $    3,500

                                                    Sales (all on credit)                                                                                                                               720,000

                                                    Sales returns and allowances           30,000                                                                                          

Required

1. Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be (a) 5% of gross accounts receivable and (b) 2% of net sales.

2. Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $3,500 instead of a credit balance.

Answer 1

	CALCULATION OF BAD DEBTS AMOUNT
	5% of Gross account Receivable
	Account Receivable	$1,50,000
	5% of the $ 150,000 (A)	$7,500
	2% of net sales
	Net Sales = $ 720,000 - $ 30,000 =	$6,90,000
	2% of net sales = ( B)	$13,800
	Total (A+B)	$21,300
	Bad Debts for Ansswer 1:
	Provision Amount as per above =	$21,300	Debit
	Less Allowance have the credit balance =	$3,500	Credit
	Need to provision	$17,800
	Bad Debts for Ansswer 2:
	Provision Amount as per above =	$17,800	Debit
	Add: Allowance have the credit balance =	$3,500	Debit
	Need to provision	$21,300
Answer =1
Date	Particulars	Debit	Credit
	Bad Debts Expenses account	$17,800.00
	To Allowance for Doubtful Accounts		$17,800.00
	(To Record the bad debt Expenses)
Answer =2
Date	Particulars	Debit	Credit
	Bad Debts Expenses account	$21,300.00
	To Allowance for Doubtful Accounts		$21,300.00
	(To Record the bad debt Expenses)