PE 9-3A Percent of sales method

At the end of the current year, Accounts Receivable has a balance of $685,000; Allowance for Doubtful Accounts has a credit balance of $9,000; and net sales for the year total $7,400,000. Bad debt expense is estimated at ¾ of 1% of net sales.

Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense; and (c) the net realizable value of accounts receivable.


Answer:

a. $55,500 ($7,400,000 × 0.0075)
b. Adjusted Balance
Accounts Receivable…………………………………………………… $685,000
Allowance for Doubtful Accounts ($9,000 + $55,500)…………… 64,500
Bad Debt Expense……………………………………………………… 55,500
c. Net realizable value ($685,000 – $64,500)………………………… $620,500