Question

8 The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2021, the allowance account had a credit balance of $88,300. Credit sales for 2021 totaled $2,520,000 and the year-end accounts receivable balance was $515,500. During this year, $85,000 in receivables were determined to be uncollectible. Manda Panda anticipates that 4% of all credit sales will ultimately become uncollectible. The fiscal year ends on December 31. 3.75 points 8 01:45:32 Required: 1. Does this situation describe a loss contingency? 2. What is the bad debt expense that Manda Panda should report in its 2021 income statement? 3. Prepare the appropriate journal entry to record the contingency. 4. Complete the table below to calculate the net realizable value Manda Panda should report in its 2021 balance sheet. eBook Complete this question by entering your answers in the tabs below. Hint Required 1 Required 2 Required 3 Required 4 Print Does this situation describe a loss contingency? Loss contingency < Required 1 Required 2 >

2. What is the bad debt expense that Manda Panda should report in its 2021 income statement?

3. Prepare the appropriate journal entry to record the contingency. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

4.

Answer 1

A B с 1 1 2 Loss contingency Yes Yes, this situation describes a loss contingency. Uncollectible receivable do not involve liabilities. The related asset will be reduced by recording uncollectible 3 receivables but it will not give rise to any liability. 4 5 2 6 Bad debt expense $100,800 7 8 3 9 Account Titles and Explanation Debit Credit 10 Bad debt expense $100,800 11 Allowance for uncollectible accounts $100.800 12 (To record bad debt contingency) 13 14 4 15 Balance Sheet 16 Accounts receivable $515,500 17 Allowance for uncollectible accounts $104,100 18 Net realizable value $411,400

Calculations are shown below: A B С 1 1 2 Loss contingency Yes Yes, this situation describes a loss contingency. Uncollectible receivable do not involve liabilities. The related asset will be reduced by recording uncollectible receivables but it will 3 not give rise to any liability. 4 5 2 6 Bad debt expense 1=2520000*4% 7 8 3 9 Account Titles and Explanation Debit Credit 10 Bad debt expense =B6 11 Allowance for uncollectible accounts =B10 12 (To record bad debt contingency) 13 14 4 15 Balance Sheet 16 Accounts receivable 515500 17 Allowance for uncollectible accounts =C11+(88300-85000) 18 Net realizable value =B16-B17