Question

Question Completion Status: QUESTIONZ At the end of the current year, the balance of the accounts receivable account for Astro Masonry was $57,000. Credit sales for the year were $629,000 . a. 2 Required: Determine the amount of the adjusting entries for uncollectible accounts and the amount of the net receivables under each of the following assumption The Allowance for Bad Debts has a credit balance of $840. The percentage of sales method is used and it is estimated that bad debts expense will be 1.6% of credit sales. b. The percentage of receivables method is used and based on an analysis of the accounts it is estimated that bad debts will amount to $3,700. The Allowance for Bad Debts has a debit balance of $400. The percentage of sales method is used and it is estimated that bad debts expense will be 1% of credit sales. b. The percentage of receivables method is used and based on an analysis of the accounts it is estimated that bad debts will amount to $3,900. TT TT Paragraph Arial 3 (12pt) E- T %DOQO T'T $x Mashup HTH CSS 3 - -

Answer 1

Amounts are in $

Part 1 :

A.

Estimated bad debts = 1.6% of 629,000 = 10,064

This must be the closing credit balance of "Allowance for bad debts"

Existing balance is $840 credit

So the remaining amount needs to be provided now, the remaining amount is 9,224 (10,064-840)

Amount of adjustment entry = 9,224

Amount of net Receivable = 57,000 - 10,064 = 46,936

B.

Estimated bad debts = 3,700

Existing allowance = 840

Amount to be provided for adjustment entry = 3,700 - 840 = 2,860

Amount of net Receivable = 57,000 - 3,700 = 53,300

Part 2 :

A.

The existing allowance for bad debts accounts is showing a debit balance of $400

Allowance for bad debts closing balance must be 1% of credit sales

= 1% of 629,000

= 6,290

Amount of adjustment entry = 6,290 + 400 = 6,690

Amount of Net receivable ledger = 57,000 - 6,290 = 50,710

Note : in adjustment entry, we have added 400 to 6,290 because the 400 is a debit balance and we need 6,290 credit balance. For that first we need to pass credit entry with both amounts combined, hence added.

B.

Amount of bad debts allowance needed = 3,900

Existing allowance = 400 debit

So amount of adjustment to be made = 3,900 + 400 = 4,300

Amount of net Receivable = 57,000 - 3,900 = 53,100

Note :

Journal entries are not asked in the question, hence not accounted. Only the amounts are asked.

If entry is asked

Income summary XXXX

Allowance for bad debts XXXX

The amount will be the one which we determined for adjustment entry in above cases