Question

1. The Accounts Receivable balance for River Corporation is $400,000 as of January 31, 2020. Before calculating and recording January 2020 Bad Debt Expense, the Allowance for Doubtful Accounts has a credit balance of $5,000. Credit sales for January 2020 are $4,000,000, and over the past several years, 1% of credit sales have proven uncollectible. An aging of River Corporation’s Accounts Receivable results in a $43,000 estimate for the Allowance for Doubtful Accounts as of January 31, 2020. Part A: PERCENT OF SALES METHOD Assume that River Corporation uses the percent of sales method to estimate future uncollectible accounts. a. What adjusting entry does River make to record January 2020 Bad Debt Expense? Accounts Receivable b. What is the “Accounts Receivable, net” on River’s January 31, 2020 Balance Sheet? c. What is “Bad Debt Expense” on River’s January 2020 Income Statement? Part B: ANALYSIS OF RECEIVABLES METHOD Assume that River Corporation instead uses the analysis of receivables method to estimate future uncollectible accounts. a. What adjusting entry does River make to record January 2020 Bad Debt Expense? b. What is the “Accounts Receivable, net” on River’s January 31, 2020 Balance Sheet? c. What is “Bad Debt Expense” on River’s January 2020 Income Statement?

Answer 1

Answer of Part A: PERCENT OF SALES METHOD Assume that River Corporation uses the percent of sales method to estimate future uncollectible accounts.

a. What adjusting entry does River make to record January 2020 Bad Debt Expense? Accounts Receivable

Answer : Below are the adjusting entries

Particulars	Debit	Credit
Bad Debts Account .....................................Dr	$4,000
To Accounts Receivable........................Cr		$4,000
(To record estimate of Uncollectable)
Particulars	Debit	Credit
Allowance for Doubtful A/c ........................Cr	$4,000
To Bad Debts		$4,000
To write off CFI Amount

$4000 (1% of Sales )

b. What is the “Accounts Receivable, net” on River’s January 31, 2020 Balance Sheet?

Particulars	Balance
Accounts Receivable	$400,000
Less : Estimated Bad Debts	$4,000
Net Account Receivable	$396,000

c. What is “Bad Debt Expense” on River’s January 2020 Income Statement?

Answer : Bad Debt Expense on River;s Jan 2020 Income statement would be of $ 4000

Part B: ANALYSIS OF RECEIVABLES METHOD Assume that River Corporation instead uses the analysis of receivables method to estimate future uncollectible accounts.

a. What adjusting entry does River make to record January 2020 Bad Debt Expense?

Particulars	Debit	Credit
Bad Debts Account .....................................Dr	$43,000
To Accounts Receivable........................Cr		$43,000
(To record estimate of Uncollectable)
Particulars	Debit	Credit
Allowance for Doubtful A/c ........................Cr	$43,000
To Bad Debts		$43,000
To write off CFI Amount

b. What is the “Accounts Receivable, net” on River’s January 31, 2020 Balance Sheet?

Particulars	Balance
Accounts Receivable	$400,000
Less : Estimated Bad Debts	$43,000
Net Account Receivable	$357,000

c. What is “Bad Debt Expense” on River’s January 2020 Income Statement?

Answer : Bad Debt Expense on River;s Jan 2020 Income statement would be of $ 43000