Question

An aging of a company's accounts receivable indicates that the estimate of uncollectible accounts totals $6,400. If Allowance for Doubtful Accounts has a $1,300 debit balance, the adjustment to record the bad debt expense for the period will require a a. debit to Bad Debt Expense for $6,400 b. debit to Bad Debt expense for $5,100 c. debit to Bad Debt Expense for $7,700 d. credit to Allowance for Doubtful Accounts for $1,300

Answer 1

In the given question, estimate of uncollectible amounts totals to $6400. Allowance for doubtful accounts has a $1300 debit balance. now the question is the adjustment to record the bad debt expense for the period will require

The correct answer for the given question is Option C

Because Allowance for Doubtful Accounts has a credit balance and also is represented on the liabilities side. And in the question Allowance for Doubtful Accounts is showing a debit balance of $1300. It might be represented as below:

Allowance for Doubtful Accounts A/c Dr 1300

To Bad debts 1300

At the year end Allowance for Doubtful Accounts is $6400, So now effectively you have to pass the following entry to bring the Allowance for Doubtful Accounts to $6400.

Bad Debts A/c Dr 7700

To Allowance for Doubtful Accounts A/c 7700

The net effect of the above two entries would be as follows which gives us the desired position:

Bad Debts A/c Dr 6400

To Allowance for Doubtful Accounts A/c 6400

Reasons for others being incorrect:

a. If you debit bad debts by $6400, the net bad debts & Allowance for Doubtful Accounts that would remain is $5100.

b. If you debit bad debts by $5100, the net bad debts & Allowance for Doubtful Accounts that would remain is $3800.

c. If you credit .Allowance for Doubtful Accounts by $1300, then the Allowance for Doubtful Accounts would show a nil balance.

The above reasons can be understood by the logics of journal entries as passed above for the right choice.