Question

The unadjusted trial balance at year end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts receivable Allowance for Doubtful Accounts Net Sales $ 444,000 Debit 1,340 Debit 2,190,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.0% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? Multiple Choice O Debit Bad Debts Expense $14,660; credit Allowance for Doubtful Accounts $14,660 Debit Bad Debts Expense $11,980, credit Allowance for Doubtful Accounts $11.980. Debit Bad Debts Expense $13.320. credit Allowance for Doubtful Accounts $13,320

Answer 1

1.
Adjusting journal entry to record bad debt expense
General Journal	Debit	Credit
Bad debt expense (444000*3%)+1340	$14,660
Allowance for doubtful accounts		$14,660
(To record bad debt expense)
Bad debt is expense and thus debited for increase in balance, allowance for doubtful account is contra-asset account which is credited for increase in balance.
2.
In case of write off the amount written off is eliminated from both accounts receivable and allowance account
General Journal	Debit	Credit
Allowance for doubtful accounts	$2,600
Accounts receivable - A Hopkins		$2,600
(To record write off of account)
Allowance for doubtful accounts is contra asset account and thus debited for decrease, accounts receivable being asset account is credited for decrease.
3.
General Journal	Debit	Credit
Cash (600*99%)	$594
Credit card expense (600*1%)	$6
Sales		$600
Debit cash for $594 for increase in balance, debit credit card expense for increase in expenses and credit sales for increase in revenue.
4.
Calculation of amount of bad debt expense
Bad debt expense	Sales*% uncollectible
Bad debt expense	1105000*0.80%
Bad debt expense	$8,840
Thus, amount of bad debt expense for adjusting entry is $8,840.
5.
Calculation of total interest due on maturity
Interest due	Notes payable amount*Interest rate*Time period
Interest due	13000*10%*(180/360)
Interest due	$650
6.
Calculation of amount of bad debt expense adjusting entry
Bad debt expense	Total uncollectible - Allowance for doubtful balance
Bad debt expense	(142500*8%)-1045
Bad debt expense	11400-1045
Bad debt expense	$10,355
7.
Amount due at maturity would be face value plus interest on notes payable
Amount due	Face value + Interest amount
Amount due	7400+(7400*10%*90/360)
Amount due	7400+185
Amount due	$7,585
8.
Calculation of amount of bad debt expense adjusting entry
Bad debt expense	Total uncollectible - Allowance for doubtful balance
Bad debt expense	(104000*5%)-940
Bad debt expense	5200-940
Bad debt expense	$4,260
9.
Calculation of double declining depreciation rate
Double declining depreciation rate	(1/useful life)*2
Double declining depreciation rate	(1/8)*2
Double declining depreciation rate	25.00%
Depreciation for Year 1	42000*25%
Depreciation for Year 1	10500
Book value at beginning of year 2	42000-10500
Book value at beginning of year 2	31500
Depreciation for Year 2	31500*25%
Depreciation for Year 2	$7,875
10.
Straight line depreciation	(Cost - Salvage value)/Useful life
Straight line depreciation	(21800-2800)/5
Straight line depreciation	3800
Depreciation expense for year 1	3800*(4/12)
Depreciation expense for year 1	$1,266.67
11.
Calculation of double declining depreciation rate
Double declining depreciation rate	(1/useful life)*2
Double declining depreciation rate	(1/4)*2
Double declining depreciation rate	50.00%
Calculation of book value at end of year 3
Year	Depreciation		Book value
1	80000	160000*50%	80000	160000-80000
2	40000	80000*50%	40000	80000-40000
3	20000	40000*50%	20000	40000-20000
Thus, book value at end of year 3 is $20,000
12.
Total asset turnover	Net sales/Average total assets
Total asset turnover	38404/14802
Total asset turnover	2.59
13.
Under straight line depreciation, depreciation expense for each year remains same
Straight line depreciation	(Cost - Salvage value)/Useful life
Straight line depreciation	(75000-5000)/5
Straight line depreciation	$14,000
Depreciation expense for year 4 is $14,000
14.
Under straight line depreciation, depreciation expense for each year remains same
Straight line depreciation	(Cost - Salvage value)/Useful life
Straight line depreciation	(30500-3700)/4
Straight line depreciation	$6,700
Depreciation expense for year 2 is $6,700
15.
Interest expense accrued	Notes payable*Interest rate*Time period for note outstanding
Interest expense accrued	9600*6%*(30/360)
Interest expense accrued	$48
16.
Maturity value of note	Face value of note + Interest on note
Maturity value of note	13500+(13500*10%*120/360)
Maturity value of note	13500+450
Maturity value of note	$13,950