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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.

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

    (a)

    Bad Debt Expense $2,000

    Allowance for Doubtful Accounts $2,000

    (b)

    Bad Debt Expense $5,420

    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
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