Question

Kingston Co. uses the percentage-of-receivables basis to record bad debt expense. It estimates that 1% of accounts receivable will become uncollectible. Accounts receivable are $607,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,470.

1) Prepare the adjusting journal entry to record bad debt expense for the year.

2) If the allowance for doubtful accounts had a debit balance of $960 instead of a credit balance of $2,470, determine the amount to be reported for bad debt expense.

Answer 1

Answer:

1)

Dr. Bad Debt Expense                         $3,600

Cr. Allowance for Doubtful Accounts $3,600

2)

Dr. Bad Debt Expense                         $5,110

Cr. Allowance for Doubtful Accounts $5,110

Explanation:

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Closing Value of the Allowance for Doubtful Accounts will be as follow

Closing Balance = $607,000 x 1% = $6,070

1)

As Allowance for Doubtful Accounts already have credit balance of $2,470, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $6,070 at the year end.

Adjustment Value = $6,070 - $2,470 = $3,600

2)

As Allowance for Doubtful Accounts already have debit balance of $960, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $6,070 at the year end.

Adjustment Value = $6,070 - $960 = $5,110