Question

Accounts receivable $410,000

Unadjusted Allowance for doubtful accounts $10,200

Sales (all on credit) 910,000

a) Prepare the year end adjusting journal entry for bad debt expense assuming that doubtful accounts are estimated to be 3% of gross accounts receivable.

b) Prepare the year end adjusting journal entry for estimated bad debt expense assuming that 6% of credit sales are not expected to be collected.

c) Compute net realizable value of accounts receivable under the % of receivables approach (after the year end adjusting entry to record bad debt expense has been made)

d) Compute net realizable value of accounts receivable under the % of sales approach (after the year end adjusting entry to record bad debt expense has been made)

e) On January 8, 2020, a customer declares bankruptcy and his $1,900 receivable is written off. Prepare the journal entry to record the write-off.

f) Does net realizable value of accounts receivable change after a write off? Explain in a sentence or two

Answer 1

Solution a:

Estimated bad debt expesne = $410000*3% - $10200 = $2,100

Date	Accounts title	Debit	Credit
31-Dec	bad debt expense	2100
	Allowance for doubtful accounts		2100

Solution b:

Estimated bad debt expesne =credit sales *6% = $910000*6% = $54,600

Date	Accounts title	Debit	Credit
31-Dec	bad debt expense	54600
	Allowance for doubtful accounts		54600

Solution 3:

Net realizablemvalue of accounts receivable = gross accounts receivable - year end balance of allowance account = $410000 - $10200 - $2100 = $397,700

Solution d:

Net realizablemvalue of accounts receivable = gross accounts receivable - year end balance of allowance account = $410000 - $10200 - $54600 = $345,200

Solution e:

Date	Accounts title	Debit	Credit
8-Jan-2020	Allowance for doubtful accounts	1900
	Accounts receivable		1900

Solution f:

No, net realizable value of accounts receivable does not change after a write off. Because write off amount is reduced from both the accounts receivable and the allowance account balance.