Question

Week 4 Pre-assignment: Black River Wholesalers Guidance comes from pages 7 and 8 of notebook Black River is a wholesaler selling general merchandise to small sports retailers. All sales are on credit with 30 day terms. Black River started the 2015 financial year with accounts receivable of $205,000 and an allowance for bad debts of $15,000. At the end of each month, Black River records bad debt expense equal to 2% of sales. The following results occurred during 2015: Month Sales Accounts receivable written off Restorations of accounts receivable previously written off July January $120,000 $2,000 February 150,000 1,000 March 140,000 500 April 135,000 0 May 155,000 1,300 $1,800 June 170,000 2,500 180,000 2,500 August 140,000 2,000 September 130,000 0 October 145,000 1,500 November 160,000 3,500 December 180,000 2,000 Part A: Create a ledger account for the allowance for bad debts and record all of the above activity. Arrive at the balance in the allowance for bad debts prior to the arrival of the auditor. 5.000 Part B; Prior to the arrival of the auditor, accounts receivable total $370,000. Upon the arrival of the auditor, you are asked to do an aging schedule. Prior to doing the aging schedule, you are instructed to write off a receivable of $12,000 that is over a year old and the debtor has entered bankruptcy. The age and allowance to be provided are as follows: Age category Over 90 days 61-90 days 31 - 60 days 30 days or less Amount of receivables $40,000 80,000 70,000 Balance Percentage allowance required 40% 10% 5% 1% 180,000 Make the required adjusting entries and enter them into your allowance for bad debts ledger. Part C: Calculate total bad debt expense for the year.

Answer 1

Allowance for Bad Debt
Date	Accounts	Debit Amount	Date	Accounts	Credit Amount
			Jan 1 2015	Opening Balance	15,000
Jan 31 2015	Account Receivable	2,000	Jan 31 2015	Allowance for Bad Debt Expenses	2,400
Feb 28 2015	Account Receivable	1,000	Feb 28 2015	Allowance for Bad Debt Expenses	3,000
Mar 31 2015	Account Receivable	500	Mar 31 2015	Allowance for Bad Debt Expenses	2,800
Apr 30 2015	Account Receivable	-	Apr 30 2015	Allowance for Bad Debt Expenses	2,700
May 31 2015	Account Receivable	1,300	May 31 2015	Allowance for Bad Debt Expenses	3,100
Jun 30 2015	Account Receivable	2,500	May 31 2015	Account Receivable	1,800
Jul 31 2015	Account Receivable	2,500	Jun 30 2015	Allowance for Bad Debt Expenses	3,400
Aug 31 2015	Account Receivable	2,000	Jul 31 2015	Allowance for Bad Debt Expenses	3,600
Sep 30 2015	Account Receivable	-	Aug 31 2015	Allowance for Bad Debt Expenses	2,800
Oct 31 2015	Account Receivable	1,500	Sep 30 2015	Allowance for Bad Debt Expenses	2,600
Nov 30 2015	Account Receivable	3,500	Oct 31 2015	Allowance for Bad Debt Expenses	2,900
Dec 31 2015	Account Receivable	2,000	Nov 30 2015	Allowance for Bad Debt Expenses	3,200
Dec 31 2015	Account Receivable	12,000	Dec 31 2015	Allowance for Bad Debt Expenses	3,600
			Dec 31 2015	Allowance for Bad Debt Expenses	7,080
Dec 31 2015	Balance Carried Forward	29,180
		59,980			59,980

Aging	Amount of Receivable	% of allowance required	Amount of Allowance required
Over 90 Days	40,000	40%	16,000
61-90 Days	80,000	10%	8,000
31-60 Days	70,000	5%	3,500
30 Days or less*	168,000	1%	1,680
Total Allowance Required			29,180
Closing Balance of allowance for bad debt			22,100
Additional Bad Debt to be created			7,080

The closing balance of account receivable was 370,000 out of which 12,000 is written off. Hence balance 352,000 were there for which aging was required.

C : Total Bad debt expense for the year is 43,180 which is derived by totaling up credit side of Allowance for Bad-debt which has corresponding entry of "Allowance for Bad Debt Expenses"