Question

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. $

Answer 1

• 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