Question

The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2021, the allowance account had a credit balance of $77,900. Credit sales for 2021 totaled $2,460,000 and the year-end accounts receivable balance was $520,000. During this year, $75,500 in receivables were determined to be uncollectible. Manda Panda anticipates that 4% of all credit sales will ultimately become uncollectible. The fiscal year ends on December 31. Required: 1. Does this situation describe a loss contingency? 2. What is the bad debt expense that Manda Panda should report in its 2021 income statement? 3. Prepare the appropriate journal entry to record the contingency. 4. Complete the table below to calculate the net realizable value Manda Panda should report in its 2021 balance sheet. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Does this situation describe a loss contingency? Loss contingency < Required 1 Required 2 >

Answer 1

Solution 1:

Yes, this is a loss contingency.

Solution 2:

Bad debt expense = $2460000*4% = $98,400

Solution 3:

Account Title	Debit	Credit
Bad debt expense Dr	$98,400
To Allowance for Uncollectible Accounts		$98,400

Solution 4:

Balance sheet
Accounts Receivable	$5,20,000
Less: Allowance for Uncollectible Accounts (77900+98400-75500)	$1,00,800
Net Realizable value	$4,19,200