Question: E7-9 Computing Bad Debts and Preparin... [FREE SOLUTION]

Chapter 7: Question: E7-9 (page 366)

Computing Bad Debts and Preparing Journal Entries) The trial balance before adjustment of Taylor Swift Inc. shows the following balances.
Debit
Credit
Accounts Receivable
$90,000
Allowance for Doubtful Accounts
1,750
Sales revenue (all on credit)
$680,000
Instructions
Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 5% of gross accounts receivable and Allowance for Doubtful Accounts has a $1,700 credit balance.

Expert verified

Debit and Credit side of journal totals$8,150.

Bad debt expense is an account reporting the amount of money due from the receivables that are now uncollectible.

Date	Accounts and Explanation	Debit $	Credit $
a	Bad debt expenses	$5,350
	Allowance for doubtful accounts		$5,350
	(To record the allowance for doubtful accounts)

b	Bad debt expenses	$2,800
	Allowance for doubtful accounts		$2,800
	(To record the allowance for doubtful accounts)
		$8,150	$8,150

Working note:

Calculation of allowance: $Allowance for doubtful accounts = (Accounts receivable 脳 Estimated bad debt percentage) + Debit balance of allowance = ($ 90, 000 脳 4 %) + 1, 750 = $ 5, 350$ 2.Calculation of allowance: $Allowance of doubtful accounts = (Accounts receivables 脳 Estimated bad debt percentage) - credit balance of allowance = ($ 90, 000 脳 5 %) - 1, 700 = $ 2, 800$

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(a) Deposit in transit \(5,500.	(d) Outstanding checks \)7,422.
(b) Bank service charges \(25.	(e) NSF check returned \)377.
(c) Interest credited to Horton鈥檚 account $31.

	Debit	Credit
Accounts Receivable	\(90,000
Allowance for Doubtful Accounts	1,750
Sales revenue (all on credit)		\)680,000