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?

Answer:

Answer 1)

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

Answer 2)

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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