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Percent of Sales Method
At the end of the current year, Accounts Receivable has a balance of $2,150,000; Allowance for Doubtful Accounts has a debit balance of $10,500; and sales for the year total $51,850,000. Bad Debt Expense is estimated at 1/4 of 1% of sales.
A. Determine the amount of the adjusting entry for uncollectible accounts.
B. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense.
C. Determine the net realizable value of accounts receivable.

Sagot :

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Answer:

a. Amount of bad  debts = Sales * (Bad debts %) = $51,850,000 * 0.25% = $129,625. Thus, the amount of the adjusting entry  for uncollectible accounts is $129,625.

b. The adjusted balances are as follow

Accounts Receivable                        $2,150,000

Allowance for Doubtful Accounts    $119,125  (129,625 - 10,500)

Bad Debt Expense                            $129,625

c. Net realizable value of accounts receivable = Balance of accounts receivables  - Allowance for Doubtful Accounts

Net realizable value of accounts receivable = $2,150,000 - $119,125

Net realizable value of accounts receivable = $2,030,875

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