Question

Sunland Company uses the percentage-of-receivables basis to record bad debt expense. Accounts receivable (ending balance) $630,000 (debit) Allowance for doubtful accounts (unadjusted) 4,900 (debit) The company estimates that 2% of accounts receivable will become uncollectible. (a) Prepare the adjusting journal entry to record bad debt expense for the year. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Bad Debt Expense Allowance for Doubtful Accounts (b) What is the ending (adjusted) balance in Allowance for Doubtful Accounts

Answer 1

Explanation:

a. The Journal Entry is shown below:-

Bad Debt expense Dr,                                     $17,500

      To Allowance for doubtful allowance                 $17,500

(Being bad expense is recorded)

Working note

Bad debt expense = (Accounts receivable × Percentage of uncollectible) + Allowance for doubtful accounts

= $630,000 × 2% + $4,900

= $12,600 + $4,900

= $17,500

b. The ending (adjusted) balance in Allowance for doubtful accounts = Accounts receivable × Percentage of uncollectible

= $630,000 × 2%

= $12,600