question archive Aaron Autobody showed the following partial unadjusted results at October 31, 2020, its year-end: AccountDebitCreditSales $1,710,000Accounts receivable$154,000 Allowance for doubtful accounts 3,200 Part 1 a
Aaron Autobody showed the following partial unadjusted results at October 31, 2020, its year-end: AccountDebitCreditSales $1,710,000Accounts receivable$154,000 Allowance for doubtful accounts 3,200 Part 1 a
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Aaron Autobody showed the following partial unadjusted results at October 31, 2020, its year-end:
AccountDebitCreditSales $1,710,000Accounts receivable$154,000 Allowance for doubtful accounts 3,200
Part 1
a. Assuming Aaron estimates bad debts to be 1.5% of sales, prepare the adjusting entry at October 31, 2020.
b. Show how accounts receivable would be shown on the October 31, 2020, balance sheet using your calculations in (a).
Part 2
c.Instead of (a), assume that Aaron estimates bad debts to be 5% of outstanding accounts receivable. Prepare the adjusting entry at October 31, 2020.
d. Show how accounts receivable would be shown on the October 31, 2020, balance sheet using your calculations in (c).
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Part 1
a. Assuming Aaron estimates bad debts to be 1.5% of sales, prepare the adjusting entry at October 31, 2020.
-> Allowance for Bad debt = 1.5% x Sales = 1.5% x $1,710,000 = $25650
Current Balance of Allowance for Doubtful Debt =$3200
Additional Allowance for Doubtful Debt to be created = $22450
Adjusting Entry will be as below
Bad Debt Expense Account Debit $22450
Allowance for Doubtful Debt Account Credit $22450
b. Show how accounts receivable would be shown on the October 31, 2020, balance sheet using your calculations in (a).
Extract of Balance Sheet will be as below
Account Receivable 154,000
Less.: Allowance for Doubtful Debt ($25650) $128,350
Part 2
c. Instead of (a), assume that Aaron estimates bad debts to be 5% of outstanding accounts receivable. Prepare the adjusting entry at October 31, 2020.
-> Allowance for Bad debt = 5% x Accounts Receivable = 5% x $154,000 = $7700
Current Balance of Allowance for Doubtful Debt =$3200
Additional Allowance for Doubtful Debt to be created = $4500
Adjusting Entry will be as below
Bad Debt Expense Account Debit $4500
Allowance for Doubtful Debt Account Credit $4500
d. Show how accounts receivable would be shown on the October 31, 2020, balance sheet using your calculations in (c).
Extract of Balance Sheet will be as below
Account Receivable 154,000
Less.: Allowance for Doubtful Debt ($7700) $146,300
