# DB’s Doughnuts creates delicio

DB’s Doughnuts creates delicious up-scale pastries for differentevents in the Tampa Bay area, and makes all sales on credit. As ofDecember 31st, 2020, the company’s sales information andaccounts receivable information is as follows (normalbalances before adjustments):

Accountsreceivable                                       \$365,000

Allowance for DoubtfulAccounts                \$12,000

1. DB’s Doughnuts currently estimates that 12% of its accountsreceivable will be uncollectible. Calculate andprepare the adjusting entry for the company’s baddebt expense as of 12/31/20.
 DATE ACCOUNT DEBIT CREDIT

DB’s Doughnuts’ controller decided to re-evaluate the bad debtadjustment, and prepared an aging of the accounts receivableaccount as follows:

 Accounts Receivable Aging Amount % Deemed Uncollectible 0-30 days old \$150,000 2% 31-60 days old \$136,000 10% 61-90 days old \$56,500 25% Over 90 days \$23,000 85%
1. Calculate and prepare theadjusting entry for the company’s bad debt expense as of 12/31/20(using the new approach, of aging the accounts receivable)
1. Using the new approach, what is the company’s net realizablevalue of receivables?

Calculation of bad debts expense forthe year ended December 31st, 2020

 Date Account Debit Credit December 31st, 2020 Bad debts expense \$ 31,800 Allowance for doubtfulaccounts \$ 31,800 (To record bad debts expense forthe year)

Working Note:

Calculation of baddebts expense for the year

Bad debts expense = (Accountsreceivable X Estimated percentage of uncollectible accounts) –Allowance for Doubtful Accounts

= (\$ 365,000 X 12%) – \$ 12,000

= \$ 31,800

Calculation of bad debts expense forthe year ended December 31st, 2020

 Date Account Debit Credit December 31st, 2020 Bad debts expense \$ 38,275 Allowance for doubtfulaccounts \$ 38,275 (To record bad debts expense forthe year)

Working Note:

Calculation of baddebts expense for the year:

 Accounts ReceivableAgeing Amount % DeemedUncollectible Estimated amount ofUncollectible accounts 0-30days old \$    150,000 2% \$                            3,000 31-60days old \$    136,000 10% \$                          13,600 61-90days old \$       56,500 25% \$                          14,125 Over 90days \$       23,000 85% \$                          19,550 Total \$                          50,275

Bad debts expense = Estimated amount uncollectibleaccounts – Allowance for Doubtful Accounts

=\$ 50,275 – \$ 12,000

= \$ 38,275

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