At the end of the current year, the accounts receivable account has a debit balance of $762,000 and sales for the year total $8,640,000.

a. The allowance account before adjustment has a credit balance of $10,300. Bad debt expense is estimated at 1/2 of 1% of sales.
b. The allowance account before adjustment has a credit balance of $10,300. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $33,000.
c. The allowance account before adjustment has a debit balance of $7,900. Bad debt expense is estimated at 3/4 of 1% of sales.
d. The allowance account before adjustment has a debit balance of $7,900. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $65,600.

Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

1.
2.
3.
4.

a. Adjustment for bad debts expenses in scenario a - $ 32,900

b. Adjustment for bad debts expenses in scenario b - $ 22,700

c. Adjustment for bad debts expenses in scenario c - $ 72,700

d. Adjustment for bad debts expenses in scenario d - $ 73,500

Explanation:

Computation of bad debts adjustment under scenario a

Receivables balance                                                                   $    762,000

Sales                                                                                             $ 8,640,000

Estimated bad debts expenses 1/2 % of sales                           $      43,200

Pre adjustment balance of allowance for uncollectible            $ (     10,300)

Adjustment to provide doubtful accounts                                  $      32,900

Computation of bad debts adjustment under scenario b

Estimated bad debts expenses based on ageing                     $      33,000

Pre adjustment balance of allowance for uncollectible            $ (     10,300)

Adjustment to provide doubtful accounts                                  $      22,700

Computation of bad debts adjustment under scenario c

Receivables balance                                                                   $    762,000

Sales                                                                                             $ 8,640,000

Estimated bad debts expenses 3/4 % of sales                           $     64,800

Pre adjustment balance of allowance for uncollectible DR.      $       7,900

Adjustment to provide doubtful accounts                                  $      72,700

The pre adjustment balance is a debit balance of $ 7,900, so it has to be added to the required allowance balance

Computation of bad debts adjustment under scenario d

Estimated bad debts expenses based on ageing                     $      65,600

Pre adjustment balance of allowance for uncollectible  DR      $        7,900

Adjustment to provide doubtful accounts                                  $      73,500

The pre adjustment balance is a debit balance of $ 7,900, so it has to be added to the required allowance balance

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