Question

Chapter 8 Practice Problems Problem #3 - Percent of sales method At the end of the current year, Accounts Receivable has a balance of $2,500,000; Allowance for Doubtful Accounts has a debit balance of $10,000; and Net Sales for the year total $6,500,000. Bad Debt Expense is estimated at 4 of 1% of Net Sales. 1) Calculate the dollar amount required to record the allowance amount. 2) Prepare the adjusting journal entry for the Allowance for Doubtful Accounts: Date Accounts Dr Cr 3) Calculate the Net Accounts Receivable Balance Problem #4 - Percent of sales method At the end of the current year, Accounts Receivable has a balance of $3,000,000; Allowance for Doubtful Accounts has a debit balance of $475,000; and Net Sales for the year total $6,500,000. Bad Debt Expense is estimated at 3/4 of 1% of Net Sales. 1) Calculate the dollar amount required to record the allowance amount. 2) Prepare the adjusting journal entry for the Allowance for Doubtful Accounts: Date Accounts Dr Cr 3) Calculate the Net Accounts Receivable Balance

Answer 1

Solution 3-1:

Dollar amount required to record allowance amount = $6,500,000*1%*1/2 = $32,500

Solution 3-2:

Journal Entries
Date	Particulars	Debit	Credit
31-Dec	Bad debts expense Dr	$32,500.00
	To Allowance for doubtful accounts		$32,500.00
	(To record bad debts expense)

Solution 3-3:

Net accounts receivables = $2,500,000 - ($32,500 - $10,000) = $2,477,500

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