Percent of Sales Method At the end of the current year, Accounts Receivable has a balance of $800,000; Allowance for Doubtful Accounts has a credit balance of $7,500; and net sales for the year total $3,500,000. Bad debt expense is estimated at ½ of 1% of net sales. Determine (a) the amount of the

Question

Percent of Sales Method

At the end of the current year, Accounts Receivable has a balance of $800,000; Allowance for Doubtful Accounts has a credit balance of $7,500; and net sales for the year total $3,500,000. Bad debt expense is estimated at ½ of 1% of net 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

Accepted Answer

a. $17,500 ($3,500,000 × 0.005)

[latex]\begin{array}{l}&\underline{Adjusted Balance}\b. ext{Accounts Receivable} . . . . . . . . . . . . . . . . . &\$800,000\ ext{Allowance for Doubtful Accounts} (\$7,500 + \$17,500) . . . . . . .&25,000\ ext{Bad Debt Expense}. . . . . . . . . . . . . . . . . . . . . . . . .&17,500\\end{array}[/latex]

c. $775,000 ($800,000 – $25,000)

Question 9.3: Percent of Sales Method At the end of the current year, Acco......

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