Answer To Accounting Question BD Test No 2 On Accounts Receivables And Bad Debts

October 14th, 2006 Comments off
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Answer to Question BD Test No 2(a):

To record monthly bad debt expenses accrual summary.

Debit: Bad debt expense (2% x $4,200,000) $84,000

Credit: Allowance for uncollectible accounts    $84,000

To record year 2005 accounts receivable write offs.

Debit : Allowance for uncollectible accounts $90,000

Credit: Accounts receivable  $90,000

Answer to Question BD No 2(b):

Debit: Bad debt expense  $22,600

Credit: Allowance for uncollectible accounts  $22,600

Ageing

                                                 $Estimated Allowance

0 – 60 days $1,512,000 x  5% =  $75,600

61 – 90 days  $220,000 x 10% = $22,000

91- 120 days  $50,000 x 30% =  $15,000

> 120 days  $128,000 x 50% =   $64,000

Total          $1,910,000            $176,600

Computation of Increase/decrease in Allowance for uncollectible account:

Allowance for uncollectible account:

Opening Balance  $160,000

+ Monthly bad debts accruals  $84,000

– Write offs  ($90,000)

Balance before year end adjustment  $154,000

Required Allowance ( per above)   $176,600

Increase in Allowance  $22,600

Answer to Question BD No 2 ©:

Computation of total Bad debt expense for 2005

Monthly accruals  $84,000

Year end adjustment  22,600

Total $106,600

Balance Sheet As At Dec 31 st 2005

Current assets:

Accounts receivable, net of $176,600 in

Allowance for uncollectible accounts  $1,733,400

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