Question

M&M Inc. has a problem with accounts receivables reaching a very high dollar amount. You assignment is determine bad debt expense that must be posted at 12/31/2019. Total account receivables for 2019 is $1,000,000.

The head of the AR department for M&M Inc. provides an aging analysis worksheet below.

Accounts Receivable 0-60 days $250,000

Accounts Receivable 61-90 days $175,000

Accounts Receivable 91-120 days $375,000

Accounts Receivable 121-180 days $125,000

Accounts Receivable Over 180 days $75,000

In previous years, M&M Inc. had use various percentages to describe the risk associated with old accounts. This year the company selected the following percentages {2%; 5%; 15%; 20; and finally 25%}.

If the company had, a zero balance in the allowance account then what would the bad debt expense entry be for the year 2019?

If the company had a $1,200 credit balance in the allowance account, then what would be the expense entry for the year 2019?

If the company had a $5,000 debit balance in the allowance account then what would be the expense entry for the year 2019?

Answer 1

	a	b	allowance account a*b
0-60	250000	2%	5000
61-90	175000	5%	8750
91-120	375000	15%	56250
121-180	125000	20%	25000
180	75000	25%	18750
		balance required of allowance account	113750$

1.

		debit	credit
31/12/2019	bad debt expense	113750$
	allowance for doubtful account		113750$

2.

1200credit balance will b deducted from required allowance account

it will be debited to bad debt expense

=113750-1200

=112550$

	bad debt expense	112550
	allowance for doubtful account		112550

3.allowance for doubtful account has normally credit balance

if it has debit balance it means bad debts expense exceeded the allowance for doubtful account balance

so we will debit bad debt expense with debit balance of allowance account and required allowance for doubtful account

=113750+5000

=118750

31/12/2019	bad debt expense	118750
	allowance for doubtful account		118750$