Question

In: Accounting

Percent of Sales Method At the end of the current year, Accounts Receivable has a balance...

Percent of Sales Method

At the end of the current year, Accounts Receivable has a balance of $895,000; Allowance for Doubtful Accounts has a credit balance of $8,000; and sales for the year total $4,030,000. Bad debt expense is estimated at 1/4 of 1% of sales.

1. Determine the amount of the adjusting entry for uncollectible accounts. $

2. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable $ Allowance for Doubtful Accounts $ Bad Debt Expense $

3. Determine the net realizable value of accounts receivable. $

Solutions

Expert Solution

  • All working forms part of the answer
  • Requirement 1

A

Sales

$      4,030,000.00

B = A x 1%

1% of sale

$            40,300.00

C = B x 1/4

1/4 of above = Bad Debt Expense

$            10,075.00 = ANSWER

--Adjustment entry [for understanding purpose]

Debit

Credit

Bad Debt Expense

$          10,075.00

   Allowance for Doubtful Accounts

$            10,075.00

  • Requirement 2

Accounts receivables

Allowance for Doubtful Accounts

Bad Debt Expenses

Unadjusted balance

$          895,000.00

$             8,000.00

$                          -  

Adjustment for Bad Debt Expense

$                           -  

$           10,075.00

$           10,075.00

Adjusted Balances for each = ANSWER

$          895,000.00

$           18,075.00

$           10,075.00

Debit

Credit

Debit

  • Requirement 3

Accounts receivables, gross

$          895,000.00

Less: Allowance for Doubtful Accounts

$            18,075.00

Net Realizable Value of Accounts receivables

$          876,925.00


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