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8 June, 05:03

Prepare the journal entry to record bad debt expense assuming Novak Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,470 debit balance. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

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  1. 8 June, 06:33
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    Additional information:

    Novak Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $155,400 Allowance for Doubtful Accounts $3,890 Sales Revenue (all on credit) 800,700 Sales Returns and Allowances 50,330

    Answer:

    net credit sales = total sales revenue - sales returns and allowances = $800,700 - $50,330 = $750,370

    accounts receivables = $155,400

    allowance for doubtful accounts = $3,890 (credit balance)

    A) estimated bad debts = 4% of accounts receivables = 4% x $155,400 = $6,216

    since the current balance of allowance for doubtful accounts is $3,890, then the adjusting entry should be = $6,216 - $3,890 = $2,326:

    Dr Bad debt expense 2,326

    Cr Allowance for doubtful accounts 2,326

    B) estimated bad debts = 4% of accounts receivables = 4% x $155,400 = $6,216

    since the current debit balance of allowance for doubtful accounts is $1,470, then the adjusting entry should be = $6,216 + $1,470 = $7,686:

    Dr Bad debt expense 7,686

    Cr Allowance for doubtful accounts 7,686
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