Question

EX 8-6 PROVIDING FOR DOUBTFUL ACCOUNTS

At the end of the current year, the accounts receivable account has a debit balance of $1,935,000 and sales for the year total $26,710,000. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the following assumptions:

a. The allowance account before adjustment has a debit balance of $10,200. Bad debt expense is estimated at 1/2 of 1% of sales.

b. The allowance account before adjustment has a debit balance of $10,200. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $175,000

c. The allowance account before adjustment has a credit balance of $25,760. Bad debt expense is estimated 3/4 of 1% of sales.

d. The allowance account before adjustment has a credit balance of $25,760. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $170,420.

Answer 1

The adjusting entries for doubtful accounts vary based on the estimated percentage of bad debts related to sales and the existing balance in the allowance account. The calculations resulted in adjusting entries of $143,750, $185,200, $174,565, and $144,660 for the respective scenarios.

Step-by-step explanation:

Adjusting Entry for Doubtful Accounts

To determine the amount of the adjusting entry for doubtful accounts, we need to look at the provided scenarios:

1. Bad debt expense estimated at 0.5% of $26,710,000 in sales results in $133,550. Since the allowance account has a debit balance of $10,200, you need to adjust it to the correct credit balance for bad debt expense. Therefore, the adjusting entry would be $133,550 + $10,200 = $143,750.
2. If an aging of accounts indicates estimated doubtful accounts of $175,000, and there's already a debit balance of $10,200 in the allowance account, the adjusting entry would be $175,000 + $10,200 = $185,200.
3. With a bad debt expense estimated at 0.75% of sales, the adjusting entry is 0.75% of $26,710,000, which equals $200,325. Since there is an existing credit balance of $25,760, the entry needed is $200,325 - $25,760 = $174,565.
4. If an aging of accounts indicates $170,420 in estimated doubtful accounts, and there is a credit balance of $25,760 in the allowance account, the adjusting entry would decrease. The amount would be $170,420 - $25,760 = $144,660.

Answer 2

The amount of the adjusting entry to provide for doubtful accounts is determined based on different assumptions in each scenario.

Step-by-step explanation:

Providing for Doubtful Accounts

Scenario a:
The amount of the adjusting entry to provide for doubtful accounts is $133,550.

Scenario b:
The amount of the adjusting entry to provide for doubtful accounts is $185,800.

Scenario c:
The amount of the adjusting entry to provide for doubtful accounts is $200,325

Scenario d:
The amount of the adjusting entry to provide for doubtful accounts is $196,180.