Question

E7-7 (L03) (Recording Bad Debts) Duncan Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $100,000 Allowance for Doubtful Accounts $ 2,000 Sales Revenue (all on credit) 900,000 Sales Returns and Allowances 50,000 Instructions Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.

Answer 1

a)

Bad Debt Expense = (Accounts receivable ending balance x percentage estimated as uncollectible) - existing credit balance in allowance for doubtful accounts

= 100,000 x 5% - 2,000

= 5,000 – 2,000

= $3,000

Journal      

Dec. 31	Bad debt expense	3,000
	Allowance for doubtful accounts		3,000

b)

Bad Debt Expense = (Accounts receivable ending balance x percentage estimated as uncollectible) + existing debit balance in allowance for doubtful accounts

= 100,000 x 5% + 1,500

= 5,000 + 1,500

=$6,500

Journal      

Dec. 31	Bad debt expense	6,500
	Allowance for doubtful accounts		6,500

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