High School

We appreciate your visit to At each calendar year end Mazie Supply Co uses the percent of accounts receivable method to estimate bad debts On December 31 2016 it has. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!

At each calendar year-end, Mazie Supply Co. uses the percent of accounts receivable method to estimate bad debts. On December 31, 2016, it has outstanding accounts receivable of $112,500, and it estimates that 5% will be uncollectible. Prepare the adjusting entry to record bad debts expense for year 2016 under the assumption that the Allowance for Doubtful Accounts has: (a) a $1,913 credit balance before the adjustment. (b) a $563 debit balance before the adjustment.

Answer :

To solve this problem, we need to correctly account for the estimated bad debts expense using the percent of accounts receivable method. Mazie Supply Co. estimates that 5% of its accounts receivable will be uncollectible. Let's calculate the required adjusting entries for two scenarios:

  1. Calculate the estimated bad debts:

    The outstanding accounts receivable on December 31, 2016, is $112,500.

    Estimated uncollectible amount = $112,500 \times 5% = $5,625.

  2. Adjusting entry scenarios:

    a) Allowance for Doubtful Accounts has a $1,913 credit balance before the adjustment.

    • Here, you already have a credit balance of $1,913, and you want it to increase to cover the estimated uncollectibles of $5,625.
    • The necessary adjustment to Bad Debts Expense should bring the current balance to the estimated amount.

    Adjustment needed = $5,625 - $1,913 = $3,712.

    Journal Entry:

    Bad Debts Expense $3,712
    Allowance for Doubtful Accounts $3,712

    b) Allowance for Doubtful Accounts has a $563 debit balance before the adjustment.

    • In this scenario, the allowance account needs to adjust from a debit balance to the estimated credit balance.
    • With a debit balance, the starting point is technically negative since you’re currently short by $563 compared to having no provision set aside.

    Adjustment needed = $5,625 + $563 = $6,188.

    Journal Entry:

    Bad Debts Expense $6,188
    Allowance for Doubtful Accounts $6,188

In summary, to align the Allowance for Doubtful Accounts with the estimate, we either increase it by the difference from a credit balance or entirely cover the need when it starts with a debit balance.

Thanks for taking the time to read At each calendar year end Mazie Supply Co uses the percent of accounts receivable method to estimate bad debts On December 31 2016 it has. We hope the insights shared have been valuable and enhanced your understanding of the topic. Don�t hesitate to browse our website for more informative and engaging content!

Rewritten by : Barada