At the end of the current year, the accounts receivable account has a debit balance of $2,950,000 and sales for the year total $27,400,000.

a. The allowance account before adjustment has a debit balance of $9,500. Bad debt expense is estimated at 3/4 of 1% of sales.

b. The allowance account before adjustment has a debit balance of $9,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $188,000.

c. The allowance account before adjustment has a credit balance of $31,400 Bad debt expense is estimated at 1/2 of 1% of sales.

d. The allowance account before adjustment has a credit balance of $31,400. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $175,000.

Required:

Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.

(a) Debit Bad debt expense                                           $215,000

    Credit Allowance for doubtful accounts                   $215,000

    (To record Bad debt expense during the period)

(b) Debit Bad debt expense                                           $197,500

    Credit Allowance for doubtful accounts                   $197,500

    (To record Bad debt expense during the period)

(c) Debit Bad debt expense                                           $105,600

    Credit Allowance for doubtful accounts                   $105,600

    (To record Bad debt expense during the period)

(d) Debit Bad debt expense                                           $143,600

    Credit Allowance for doubtful accounts                  $143,600

    (To record Bad debt expense during the period)

Explanation:

(a) If Bad debt expense is estimated at 3/4 of 1% of sales, this translates to:

0.75 x 1% x $27,400,000 = $205,500

The required amount of adjustment to Bad debt expense with $9,500 debit balance in the allowance account is $9,500 + $205,500 = $215,000

(b) If the estimated doubtful accounts is $188,000 with a debit balance of $9,500 in the allowance account, the required adjustment to Bad debt expense is $9,500 + $188,000 = $197,500

(c) If Bad debt expense is estimated at 1/2 of 1% of sales, this means:

0.5 x 1% x $27,400,000 = $137,000

With a credit balance of $31,400 in the allowance account, the adjustment to Bad debt expense becomes $137,000 - $31,400 = $105,600

(d) If the estimated doubtful accounts is $175,000 with a credit balance of $31,400 in the allowance account, the required adjustment to Bad debt expense is $175,000 - $31,400 = $143,600

since the options are not listed, when you are working on your budget you should also add water, tv, internet, miscellaneous and your 'fun' money for in your budget. when budgeting, you need to allow for fun money, and mis/accidental money so that you stick to the budget and not go crazy because you feel strapped to the budget.