PE 9-3B Percent of sales method

At the end of the current year, Accounts Receivable has a balance of $3,460,000; Allowance for Doubtful Accounts has a debit balance of $12,500; and net sales for the year total $46,300,000. Bad debt expense is estimated at ½ 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. $231,500 ($46,300,000 × 0.0050)
b. Adjusted Balance
Accounts Receivable…………………………………………………… $3,460,000
Allowance for Doubtful Accounts ($231,500 – $12,500)………… 219,000
Bad Debt Expense……………………………………………………… 231,500
c. Net realizable value ($3,460,000 – $219,000)……………………… $3,241,000