Question

Modern Office has $3,000,000 of credit sales for the year and $50,000 of outstanding accounts receivable and $1,000 balance of Allowance for Doubtful Account(AFDA) on December 31.  Modern Office estimates that either 0.1% of credit sales or 8% of outstanding receivables will not be collectible and wants to set up an Allowance for Doubtful Account(AFDA).

How much is the bad debt expense for the year under the Percentage of Sales (Income Statement) Approach?

How much is the bad debt expense for the year under the Percentage of Account Receivable (Balance Sheet) Approach?

Journalize the following:

1. adjustments needed for the AFDA using the balance sheet approach.
2. write off of an account receivable for $500

TO RECEIVE MARKS YOU MUST USE THE FOLLOWING FORMAT FOR JOURNALS

Dr. Cash 100

Cr. revenue 100

Answer 1

1)	Bad debts expense ( income statement approach)
	3,000,000*.1%
	3000	answer
	Bad debts expense (Balance sheet approach)
	50,000*8%-1000
	3000	answer
2)	Journal Entries
	DR	Bad debts expense				3,000
	CR	Allowance for doubtful accounts					3,000
	DR	Allowance for doubtful accounts				500
	CR	Accounts receivable					500