PE 9-3B Percent of sales method

At the end of the current year, Accounts Receivable has a balance of $2,500,000; Allowance for Doubtful Accounts has a debit balance of $9,000; and net sales for the year total $32,000,000. Bad debt expense is estimated at ¼ of 1% of net sales.

Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense; and (c) the net realizable value of accounts receivable.

Answer:
a. $80,000 ($32,000,000 × 0.0025)      
                                                                                           Adjusted Balance
b. Accounts Receivable........................................................ $2,500,000
Allowance for Doubtful Accounts ($80,000 – $9,000)              71,000
Bad Debt Expense............................................................          80,000  


c. Net realizable value ($2,500,000 – $71,000).................... $2,429,000

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