Question

(7 points) The trial balance before adjustment of Risen Company reports the following balances: Cr. Dr. $800.000 Accounts receivable Allowance for doubtful accounts Sales (all on credit) Sales returns and allowances $60,000 9,750,000 147.000 Instructions (3 points) Prepare the entry for estimated bad debts assuming that doubtful accounts are estimated to be 8% of gross accounts receivable. (b) (2 points) Assume that all the information above in is the same except that the Allowance for Doubtful Accounts has a debit balance of S14,000. How will this difference affect the journal entry in part (a)? (2 points) On the 3rd day in January, the company received notice that Blue Co. has declared bankruptcy and will not be paying their amount due ($4,000). Prepare the journal entry for the event.

Answer 1

Requirement a:

Account title and explanation	Debit	Credit
Bad debt expense	$4,000
Allowance for doubtful accounts		$4,000
[To record bad debt expense]

Calculations:

Allowance for doubtful accounts
Ending balance (800,000 x 8%)	$64,000
Less: Beginning balance (Cr.)	($60,000)
Bad debt expense	$4,000

Requirement b:

Account title and explanation	Debit	Credit
Bad debt expense	$78,000
Allowance for doubtful accounts		$78,000
[To record bad debt expense]

Calculations:

Allowance for doubtful accounts
Ending balance (800,000 x 8%)	$64,000
Add: Beginning balance (Dr.)	$14,000
Bad debt expense	$78,000

Requirement c:

Account title and explanation	Debit	Credit
Allowance for doubtful accounts	$4,000
Accounts receivable		$4,000
[To record written off of uncollectibles]