13 December, 18:11

# Prepare the journal entry to record bad debt expense assuming Windsor Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a \$1,420 debit balance.

0
1. 13 December, 19:12
0
DR. CR.

(a)

Allowance for Doubtful Accounts \$2,000

(b)

Allowance for Doubtful Accounts \$5,420

Explanation:

a)

Allowance for Doubtful Accounts forthe year = Closing Account receivable x Rate of Allowance = \$100,000 x 4% = \$4,000

Allowance for Doubtful Accounts already has credit balance of \$2,000 sot he net value of \$2,000 (\$4000 - \$2000) is adjusted in the journal entry.

b)

As the Allowance for Doubtful Accounts already had debit balance of \$1,420but we have to make it as \$4,000 credit balance because this is the contra asset account which normally has credit balance.

Adjustment amount = \$4,000 + \$1,420 = \$5,420

* The data was missing in the question which is as follow

Duncan Company reports the following financial information before adjustments.

Dr. Cr.

Accounts Receivable \$100,000

Allowance for Doubtful Accounts \$2,000

Sales Revenue (all on credit) \$900,000

Sales Returns and Allowance \$50,000