PE 9-3A Percent of sales method

At the end of the current year, Accounts Receivable has a balance of $3,750,000, Allowance for Doubtful Accounts has a credit balance of $22,750, and sales for the year total $48,400,000. Bad debt expense is estimated at 3⁄4 of 1% of 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. $363,000 ($48,400,000 × 0.0075) b.

Accounts Receivable......................................................  Allowance for Doubtful Accounts ($22,750 + $363,000)...... Bad Debt Expense......................................................... c. Net realizable value ($3,750,000 – $385,750)........................  Adjusted Balance $3,750,000 363,000 (385,750) Debit (Credit) $3,364,250