Question

Chapter 8 Practice Problems Problem #5 - Percentage of sales method At the end of the current year, Accounts Receivable has a balance of $4,000,000; Allowance for Doubtful Accounts has a credit balance of $50,000; and Net Sales for the year total $7,500,000, 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 Problem #6 - Percentage 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 credit balance of $10,000; and Net Sales for the year total $6,500,000. Bad Debt Expense is estimated at 1 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

Answer to Problem#5: Percentage of Sales Method: Sub Part (1): Calculation of the Dollar amount required to record the allowance amount: Under Percentage of Sales method, there is no need to specifically adjust the debit balance in Allowance for Doubtful Accounts. Net Sales $ 7,500,000.00 Estimated Bad Debts Expense = $7,500,000 x 1% x 3/4 = $56,250.00 Sub Part (2): Preparation of Adjusting Journal Entry for the Allowance for Doubtful Accounts: The Adjusting entry for the Allowance for Doubtful Accounts is as follows Journal Entries Date Account Title and Explaination Post. Ref. Debit $ Credit $ $ 56,250.00 $ 56,250.00 Bad Debts Expense Allowance for Doubtful Accounts (To record adjusting entry for estimated bad debts expense)

Sub Part (3): Calculation of the Net Accounts Receivable Balance: Accounts Receivable Balance $ 4,000,000.00 Less: Allowance for Doubtful Accounts $ 50,000.00 Add: Adjustment for Estimated Uncollectibles $ 56,250.00 $ (106,250.00) Net Accounts Receivable $ 3,893,750.00

Answer to Problem#6: Percentage of Sales Method: Sub Part (1): Calculation of the Dollar amount required to record the allowance amount: Under Percentage of Sales method, there is no need to specifically adjust the debit balance in Allowance for Doubtful Accounts. Net Sales $ 6,500,000.00 Estimated Bad Debts Expense = $6,500,000 x 1% x 1/2 = $32,500.00 Sub Part (2): Preparation of Adjusting Journal Entry for the Allowance for Doubtful Accounts: The Adjusting entry for the Allowance for Doubtful Accounts is as follows Journal Entries Date Account Title and Explaination Post. Ref. Debit $ Credit $ $ 32,500.00 $ Bad Debts Expense Allowance for Doubtful Accounts (To record adjusting entry for estimated bad debts expense) 32,500.00

Sub Part (3): Calculation of the Net Accounts Receivable Balance: Accounts Receivable Balance $ 4,000,000.00 Less: Allowance for Doubtful Accounts $ 10,000.00 Add: Adjustment for Estimated Uncollectibles $ 32,500.00 $ (42,500.00) Net Accounts Receivable $ 3,957,500.00