Question

1. Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $390,000 and credit sales are $1,300,000. An aging of accounts receivable shows that approximately 5% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment? a. Bad Debt Expense 22,000 Allowance for Doubtful Accounts 22.000 b. Bad Debt Expense 17,000 Allowance for Doubtful Accounts 17,000 c. Bad Debt Expense 65,000 Allowance for Doubtful Accounts 65,000 d. Bad Debt Expense 19,500 Allowance for Doubtful Accounts 19,500 2. Under the allowance method of accounting for uncollectible receivables, writing off an uncollectible account. a. is not an acceptable practice. b. affects only balance sheet accounts. c. affects _only income statement accounts. d. affects both balance sheet and income statement accounts. Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the company. This item is a(n) a. addition to the balance per bank statement b. deduction from the balance per bank statement c. addition to the balance per company's records d. deduction from the balance per company's records

Answer 1

Ans (1) Option ( B)

Bad Debt Expense	$17,000
Allowance For Doubtful Accounts		$17,000

Explanation:

Estimates of uncollectible ( $390,000× 5%)	$19,500
Less: Allowance For Doubtful Accounts Credit	($2500)
Bad Debt Expense	$ 17,000

Ans (2) Option ( B) affects only balance sheet accounts

( it reduces account receivable account and decreases the allowance for doubtful accounts, these both are balance sheet account hence (b) is the correct choice.

Ans (3) Option ( C) addition to the balance per company's records

( credit memo will reduce the payment toward the payment and addition to compan's record.)