Question

-13 Question 3 of 4 < > View Policies Current Attempt in Progress Blue Company reports the following financial information before adjustments. Cr. Dr. $168.900 Accounts Receivable Allowance for Doubtful Accounts Sales Revenue (all on credit) Sales Returns and Allowances $3,200 849,300 50.440 Prepare the journal entry to record bad debt expense assuming Blue Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,550 debit balance. (If no entry is required, select "No Entry" for the account titles and enter for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) No. Account Titles and Explanation (a) Debit Credit (b) e Textbook and Media List of Accounts Assistance Used Save for Later Attempts: 0 of 5 used Submit Answer

Answer 1

3 of 4

		Dr. $	Cr. $
a)	Bad debt expense Acc Dr.	3556
	Allowance for doubtful debts		3556

Working

Allowance for doubtful debt account
			1	Balance b/d	3200
31	Balance c/d	6756		Bad debt expense	3556
		6756			6756

Bad debt expense = 168900 x 4% = $6756

But the allowance for doubtful debts account already had a credit balance of $3200.

So only $3556 (6756 - 3200) is to be adjusted.

When the allowance account shows a credit balance, the new bad debt expense must be deducted.

		Dr. $	Cr. $
b)	Bad debt expense Acc Dr.	8306
	Allowance for doubtful debts		8306

Working

Allowance for doubtful debt account
1	Balance b/d	1550
31	Balance c/d	6756		Bad debt expense	8306
		8306			8306

Bad debt expense = 168900 x 4% = $6756

But the allowance for doubtful debts account already had a debit balance of $1550.

So only $8306 (6756 + 1550) is to be adjusted.

When the allowance account shows a debit balance, the new bad debt expense must be added.

2 of 4

Trade receivables account

	$		$
		bank	195900
Sales	310660	Balance c/d	114760
	310660		310660

Working

Merchandise purchased	320050
Less Ending inventory	(98150)
Cost of Sales	221900
Add Gross profit mark up 221900 x 40%	88760
Sales	310660

Total sales were $310660 out of which they paid $195900.

so Closing trade receivables = 310660 - 195900 = $114760

Apparent shortage = 114760 - 85450 = $29310.